Now that it’s official, will a Biden-Harris Administration mean more calls for an Obamacare like effort for retirement plans?
While the need for more government intervention and action has long been debated, new research from Georgetown University Center for Retirement Initiatives (CRI) finds that “national universal access policies could dramatically close the retirement savings access gap for millions of employees and provide larger annual incomes for retirees.”
The CRI study examined several options, including the effect of variables such as the type of account (payroll deduction Roth IRA or Roth 401(k)), exemptions for certain small employers, and voluntary versus mandatory employer contributions.
“These approaches would result in significant expansions of access and participation among the estimated 57.3 million private-sector employees who are not offered any workplace retirement plan today,” CRI said. “Modeling suggests that these approaches would increase the number of workers saving for retirement in the year 2040 by 28 to 40 million (depending on the chosen design features).”
It argues that the research demonstrates the importance of workers beginning to save early through easy access to savings options.
A young worker with a modest income who simply follows default savings choices for 40 years could generate as much as $14,320 and, if Congress would enact a refundable Saver’s Tax credit, as much as $21,300, per year in additional income at retirement. Under these models, the total retirement savings in the United States would grow by between $1.4 trillion and $1.9 trillion in the year 2040.
“Addressing the retirement savings crisis can be done in a simple, cost-effective way using private sector solutions paired with a national requirement for employers to provide options to their employees,” Angela M. Antonelli, Executive Director of Georgetown’s CRI, said in a statement. “Millions of American workers would benefit from universal access to Auto-IRAs, 401(k)s, or other savings arrangements.”
Benefits of a national program
The study found that universal access to retirement savings would add $72 to $96 billion to US GDP growth in the year 2040.
Addressing the retirement savings crisis at a national level will also reduce the fiscal burden on government agencies that already face increased financial challenges because of the pandemic.
Under the baseline Auto-IRA scenario considered, federal and state budgets could expect to see an annual savings of $8.7 billion in 2040 by reducing assistance needs for retirees without sufficient retirement income.