More questions than answers surround President Trump’s State of the Union announcement Tuesday that his administration plans to create retirement accounts—with a federally funded match of up to $1,000 per year—for the roughly 50 million Americans who lack access to an employer-sponsored plan.
As The Wagner Law Group shared in a Feb. 26 blog post on the subject, this initiative is clearly still in its conceptual stage and no proposed legislative text has been released. “Several implications may emerge depending on how the program is designed and effectuated,” the law alert noted. “The Trump administration has not yet clarified whether this new federal program would operate alongside employer-sponsored plans, serve solely as an alternative for uncovered workers, or impose any new employer obligations.”
Critical unknowns remain:
• Will it be in the form of a new federal plan, a federal match program, or a hybrid model?
• Will the new accounts be modeled after the federal Thrift Savings Plan (TSP), as outlined in the Retirement Savings for Americans Act (RSAA) currently under consideration in Congress?
• Will it follow the MyRA structure from the Obama era (starter accounts)?
• Will the federal match be universal, or targeted to low- and moderate-income workers?
• Will Congress be involved, or can it be done through executive action?
• What would be the role of SECURE 2.0’s Saver’s Match in any new framework?
• Will this plan be covered by ERISA or exempt?
• What is the cost and how will it be paid for?
• Would small- to medium-sized employers stop offering their own 401(k)s in favor of the new plan?
• Will the long-term impact for participants really be a net positive, or will it down the road disqualify them from Medicaid and Supplemental Security Income eligibility?
The list could go on and on—and answers are expected to slowly trickle out over the next several months.
But ever since President Trump’s mention of it Tuesday, interested parties have been quick to speak out about how such an initiative could address the coverage access gap, and what it might—or should (in their view)—look like.
Ghilarducci: Addressing coverage gap ‘not trivial’
The Wealth Equity Lab (formerly Retirement Equity Lab) at The New School for Social Research issued a statement shortly after the President’s announcement.
“The executive action would use existing administrative authority to establish automatic retirement accounts for uncovered workers and pair them with a refundable Saver’s Match beginning in 2027. If implemented effectively, the proposal could significantly reduce the retirement coverage gap that affects tens of millions of low- and moderate-income workers,” the statement read.
“Expanding access is a meaningful step,” added Teresa Ghilarducci, Director of the Wealth Equity Lab, who has spent many years developing and advancing a proposal for universal, automatic retirement accounts. “For decades, Congress has tolerated a system in which nearly half of full-time workers and most part-time and gig workers lack access to a workplace retirement plan. Addressing that coverage gap is not trivial.”
The statement emphasized that the proposal appears to share structural features with the RSAA, legislation seeking to create universal automatic enrollment, provide a federal match, and extend eligibility to a broader share of workers.
Research by Ghilarducci and Kevin Hassett (2021)—which formed the basis for the RSAA—found that a federal match substantially increases participation among low- and moderate-income workers when accounts are simple and accessible.
Hassett, who now serves as Director of the National Economic Council (NEC) for the second Trump administration, spoke to Trump’s retirement plan proposal on FoxBusiness this week.
“401(k)s went up on average $40,000 last year but about half of Americans don’t have access to a 401(k). President Trump wants to make it so that everybody has access to a 401(k) that’s low cost and modeled after what we have for government workers—you know, the Thrift Savings Plan.”
While adding an extra $10,000 to President Trump’s SOTU comment that 401(k)s were up $30,000 last year (a figure the White House has not detailed publicly), Hassett’s mention of the TSP as model for the new plan was notable, given the vagueness of Trump’s proposal at this point.
EIG pushes for RSAA adoption
The Economic Innovation Group, a bipartisan think tank which published Ghilarducci and Hassett’s 2021 paper and has been a key supporter of the RSAA, also released a statement this week.
According to EIG’s research, 42% of full-time working Americans do not have access to retirement plans, and lower-income workers are disproportionately left out of the current system. Nearly 79% of full-time workers in the lowest-earning decile (earning less than $27,400 a year) lack access to a retirement plan.
“EIG welcomes the president’s commitment to creating new pathways for workers to build wealth modeled after the federal Thrift Savings Program (TSP). Closing the gap in retirement savings would be transformative for working Americans, millions of whom are being left behind by the current system,” said John Lettieri, President and CEO of the EIG. “Doing so would also reap enormous long-run fiscal benefits by reducing dependence on safety net programs. For these reasons, EIG has been a strong supporter of the bipartisan, bicameral Retirement Savings for Americans Act (RSAA), which we believe could easily be paired with the Trump Administration’s executive action to deliver a historic win for American workers.”
Biggs questions net benefit for low earners
Let’s go back to that comment about reaping “enormous long-run fiscal benefits by reducing dependence of safety net programs” for a moment.
This is something that prominent economist Andrew Biggs Ph.D., senior fellow at the American Enterprise Institute had plenty to say about this week, both to 401(k) Specialist and in his Little Known Facts blog post on Feb. 26. In the latter, Biggs makes an interesting, counterintuitive point that perhaps not everyone should be saving for retirement.
“In fact, analysis of the RSAA shows that many low-earning Americans could be made significantly worse off by saving more,” Biggs wrote.
He argues that while the RSAA appears fiscally attractive—citing a RAND analysis that finds it could ultimately save more in reduced Medicaid and SSI spending than it costs—the savings come from delaying or eliminating low-income retirees’ access to those safety-net programs.
Over 40 years, federal contributions of about $1.5 trillion could reduce Medicaid and SSI costs by $3.3 trillion, effectively “doubling” the government’s money, the RAND analysis found. But Biggs notes that this happens because retirees with RSAA balances would have to spend down their own savings before qualifying for benefits. As a result, low-income workers may gain little net benefit: their contributions and government matches could largely offset reduced future safety-net eligibility, while also lowering their take-home pay during their working years.
RSAA still faces bumpy road
Biggs told 401(k) Specialist Friday that if Trump’s initiative were to take the form of the RSAA, it “would be a big deal, for good or bad, but it would require legislation. And in the legislative process the things I point out about the RSAA would come out and I assume it loses Democratic support, or the bill has to include a bunch of exemptions that would drive up the budget cost. But a nationwide auto-enrollment retirement system would in fact change the landscape a lot.”
“A nationwide auto-enrollment retirement system would in fact change the landscape a lot.”
Andrew Biggs
He added that the things Trump do on his own are more narrow.
“He can resuscitate the MyRA plan from Obama, and then low earners can get a match via the Saver’s Match. But that’s limited to really low-income workers—like $25,000 and less. Participation won’t be high in that group, and this is precisely the group that would be likely to lose means-tested benefits by virtue of saving,” Biggs said.
“It really is an issue of people not thinking hard enough about how our current system works, what we want to achieve, and how policy changes would affect that.”
Rollout could start without legislation
The New York Times reported Tuesday that the Trump administration would use its existing administrative authority to create a universal, portable savings account, though future legislation [such as the RSAA] could strengthen it.
The new accounts would most likely be operated by the same low-fee investment managers that oversee the federal government’s Thrift Savings Plan, and workers would be able to enroll through an online service in the Treasury Department.
Quoting Ghilarducci, the Times article said what makes this plan potentially groundbreaking is that it would take the employer out of the equation, enabling any worker to join (although she said employers would likely encourage enrollment for new employees during orientation. “It’s huge,” she said, adding that people could eventually even be able to opt in on their federal tax returns.
Waiting on details, watching for impact
For plan advisors and sponsors, the proposal raises important strategic considerations, including potential crowd-out effects on small employer plans, interaction with state auto-IRA programs, and the role private-sector providers may play in administering any new federal accounts.
Whether implemented through executive action or legislation, the proposal could represent the most significant federal expansion of retirement coverage in decades. But until details emerge, the industry is left parsing possibilities.
401(k) Specialist will continue to cover developments related to Trump’s retirement plan proposal, and all published coverage can be found here.
SEE ALSO:
• Trump Floats New Retirement Plan for Workers Without 401(k)s
• ‘Retirement Savings for Americans Act’ Introduced Again in Congress