The sensational claim of a “retirement crisis” in the wake of the defined benefit’s demise is increasingly questioned, with policy wonks like AEI’s Andrew Biggs and Center for Retirement Research’s Alicia Munnell examining (and reexamining) the numbers.
Their findings? It’s not that bad (or at least as reported).
Empower Retirement, through its Empower Institute, is now the latest to take aim at widespread reports of a national pension predicament.
“American workers have greater access to workplace retirement plans than previous generations, they are saving more and are expected to have more money in retirement—all factors that run counter to the perception of a crisis in retirement savings,” a new report, bluntly titled “The Over-Stated Retirement Crisis,” argues.
Based on publicly available literature, it challenges the view that the 40-year-old defined contribution system is overly deficient in providing adequate retirement security for American workers.
“Workplace retirement plans have evolved and improved over the years, which makes saving for retirement easier and more accessible for more American workers,” the paper says, noting that when workplace savings plans are considered in the context of the greater retirement system, Americans today are saving proportionately more than in the past.
For instance:
In 1975, total retirement savings were equal to 48% of total employee wages, according to Federal Reserve Board data. In 2017, with the defined contribution system fully established, retirement assets topped 337% of employee wages.
Research shows that approximately $7.5 trillion is held in defined contribution plans, and access to workplace plans has increased over time. While 71% of civilian employees have access to either a defined benefit or a defined contribution plan, in 80% of married couples at least one spouse has access to a retirement plan. Total employee and employer contributions have increased from an average of 9.9% of employee salaries in 1984 to 12.8% of employee salaries in 2017.
The Institute’s analysis of the research says that improvements to the retirement system are offering better levels of protection for retirement savers now than in the past.
Portability and ownership, regulatory oversight, and the provision of advice are seen as key areas of focus.
Room for improvement
However, it’s far from perfect, and the institute notes that room for improvement remains, including:
- Increasing plan access: The retirement system works best for those who have access to workplace retirement plans and can take advantage of the whole system beyond those plans, writes the Institute.
- Improving plan features: Within individual plans, employers can choose options, such as automatic features, company-matching contributions, financial wellness plug-ins and advice solutions that can help their employees save more.
- Public policy advocacy: Stakeholders in the retirement system can advocate for opportunities to increase coverage and portability. These efforts may include public policy interventions such as Social Security reform and open multi-employer plans, among other topics. Future legislation may further expand and protect Americans’ ability to build savings and generate income with the goal of achieving a comfortable retirement.