Why Increasing Access, Participation in Workplace Retirement Plans Needs to be Prioritized: Pew
Nearly half of the private sector workforce—some 56 million workers nationwide—don’t get retirement benefits through their jobs. And that’s a big problem for a variety of reasons, according to a new Issue Brief from The Pew Charitable Trusts.
“Without such initiatives, many millions of Americans will be left to rely on government-provided social services—at an enormous cost to both state and federal taxpayers”
The brief explains how workers who lack access to employer-sponsored retirement savings plans face financial hurdles making it difficult for them to save, and as a result, their future heavy reliance on government-provided social services will come at an enormous cost to both state and federal taxpayers.
That’s why expanding access to, and increasing participation in, work-based retirement savings opportunities is such an important objective, as it would provide a way for working families to build for the future and prepare for retirement while also benefiting state and local governments by reducing the future cost of social services.
Pew’s nationally representative survey of workers who don’t have access to employer-sponsored retirement plans shows that they experience everyday financial constraints that make it difficult for them to accumulate assets. Many respondents are living paycheck to paycheck, with one-third reporting they “rarely” or “never” have money left over at the end of the month.
The brief notes that workers who lack access to employment-based retirement savings plans are often vulnerable—especially in retirement, when they must rely heavily on income from Social Security. It also stresses that state-based auto-IRAs and the federal Saver’s Match can help them prepare for a more secure financial future.
“Without such initiatives, many millions of Americans will be left to rely on government-provided social services—at an enormous cost to both state and federal taxpayers,” the brief, from John Scott, Project Director, Retirement Savings at The Pew Charitable Trusts, states.
The brief is the first in a series based on Pew’s survey of workers who don’t have access to employer-sponsored retirement savings plans. Future briefs will examine different topics related to building wealth, including wealth-building barriers, caregiving, state-facilitated retirement savings programs, and the new federal Saver’s Match, among others.
Importance of building wealth recognized
Despite their everyday struggles, building wealth was important to the vast majority of survey respondents (81%). When they were asked why wealth building was important, the primary reasons cited were the desire to live “without financial worries” and to achieve retirement security.
For all respondents, not earning enough at their jobs was named a top barrier to saving.
The top three pathways for accumulating assets cited by respondents were putting money into savings and investments; increasing income; and minimizing debt. Within the category of savings and investments, real estate and retirement savings were the top choice across all respondents.
More Black and Hispanic workers prioritized saving in an emergency fund relative to White workers. White and Hispanic workers were more likely than Black workers to list saving for retirement as a financial goal.
State auto-IRAs can help
The brief mentions that research shows individuals are 15 times more likely to save for retirement if money is deducted automatically from their paychecks.
To address the gap in access to employer-sponsored retirement savings plans, 17 states have created statewide programs targeted specifically at workers who don’t have access to an employer-sponsored plan.
Research has found Black and Hispanic workers, who have lower rates of access to employer-provided retirement benefits than other groups of workers, are strongly participating in these auto-IRA programs.
To date, these state programs have helped 1 million workers—in the 10 states for which data is available—accrue roughly $1.9 billion in savings since 2017. These state accounts are funded solely with employee contributions, but a new federal tax credit, the Saver’s Match, will provide matching funds of up to $1,000 for retirement accounts of eligible savers when it goes into effect in 2027.
“State-based auto-IRAs and the federal Saver’s Match can help them prepare for a more secure financial future,” the brief concludes.
Read the full Issue Brief here.
SEE ALSO:
• State-Mandated IRAs Not Crowding Out Private 401(k)s: Pew Research
• Saver’s Match Could Solve the Retirement Savings Gap: Morningstar
• Over Half of Workers Have Access to a Workplace Retirement Plan
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
