A generation or two ago, many people spent a career with a single company, and their retirement resources often consisted of payments from that company’s pension plan, plus Social Security. In fact, it was the responsibility of an employer to provide some type of retirement plan option. Today, people often are employed by three or four or more places, Social Security payments are less robust, and smaller employers often cannot afford to offer a retirement plan.
A J.P. Morgan 2018 Defined Contribution Plan Participant Survey showed that more than half of respondents believe they will be able to retire when they want – but fewer than 40% are highly confident in their ability to make key investment decisions. Many, in fact, are not fully engaged in monitoring their 401(k) accounts. The same survey indicates that 73% of respondents believe they should be contributing 10% more to their plan, and 70% missed their savings target last year.
The question is: Are people not saving enough…or do they not have ready access to retirement-savings options? I believe it’s a combination of both factors.
It’s generally agreed that people who have access to a retirement plan through their employer are more likely to save for their retirement. Those working for small employers who do not offer a plan are not nearly as likely to save for retirement on their own. It’s a matter of lack of motivation.
Fortunately, help toward providing access may be on the way from the federal government, and some states are also looking at ways to address the issue.
The U.S. Congress has been looking at the situation for some years, and a long-pending Retirement Enhancement and Savings Act (RESA) has been introduced in both the House and Senate – with bipartisan support.
If enacted, RESA would allow for multiple employer retirement plans, or MEPs. Essentially, a MEP would enable small employers to join together to offer a retirement plan, easing the burden on each to share the complexities and expense of managing such plans.
Offering a retirement plan would likely make a small employer more attractive to would-be employees, and, under the current proposal, employers would get tax credits if they offered auto enrollment. This would insure a passive way for employees to invest. They could opt out of the plan, but they would not be required to opt in.
The other governmental approach on the horizon is the provision of State-sponsored retirement plans. The next blog will look at these and also describe how some other countries have addressed these issues.