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Funding Your Future

Retirement Coverage Needs More Work

The traditional components of a secure retirement are Social Security, employer-sponsored plans and personal savings. The most recent Social Security trustees’ report warns that, without policy reforms, the trust fund will be insolvent by 2035. Likewise, the household savings rate plummeted to 2.4 percent in December 2017, the lowest in over a dozen years.

By contrast, employer-provided 401(k) plans now represent the core of America’s retirement savings. This is essential as public policies have made it increasingly difficult for employers to sponsor traditional pensions. Critics of 401(k) plans point to small “average plan balances,” but they fail to acknowledge that those balances are predictably low since they include younger workers who are decades away from retirement. Average balances are also misleading by not recognizing people with multiple accounts from different jobs. But Fidelity reports that, among individuals in a plan for 15 straight years, the average balance now approaches $380,000, demonstrating the value of consistent plan participation over time.

Still, too few individuals are fully taking part in the employer system – and are missing the advantage of “free money” in the form of employer-matching contributions.

One potential solution to the retirement coverage gap is the creation of “multiple employer plans” (MEPs), which would help independent workers and small businesses – unable to sponsor a plan themselves – to join together to achieve economies of scale akin to large companies. Legislation expanding MEPs enjoys bipartisan support in both chambers of Congress.

Employers are pursuing creative innovations to promote financial security. For example, as a supplement to employer matching contributions, some businesses are investing in financial wellness programs to help individuals manage debt and plan for the future.

Health Savings Accounts are often regarded as an alternative to a traditional health plan. But these arrangements also can function as retiree health accounts, alleviating the most daunting economic challenge of old age.

Employers, employees and the federal government have a common interest in helping individuals achieve financial security in retirement. Just as important as addressing the challenges facing Social Security and personal savings is protecting and promoting what is working best – employer-sponsored plans.

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