New Thinking Needed to Improve Retirement Security


Retirement security is a real concern for those in today’s workforce. And for too many, it is being addressed using the wrong investment tools.

Many people don’t earn enough to save anything for retirement. But for those who do, the increased use of the 401(k) should be a reason for concern. Because as even its creators admit, the concept was never meant to replace defined pension plans.

Industry numbers even show that the amount being saved through 401(k)s is lagging behind pension income significantly. In 2014, for example, the Investment Company Institute found seniors received $105 billion in pension income, compared to only $29 billion from 401(k)-style plans.

 While some have put forward possible plans, the Economic Policy Institute notes, their value is still questionable. “The failures of the current system are clear, but that doesn’t mean all proposed reforms are good ones. While it’s refreshing to see the idea of employer or employee mandates floated in a mainstream news article and attention paid to reform efforts advanced by state and city governments, it’s critical that mandatory and government-sponsored plans be lower-cost as well as lower-risk than current 401(k)s and IRAs.”

Given that Social Security expansion is a likely non-starter for the time being, other solutions are needed. Currently, five states —California, Oregon, Illinois, Maryland, and Connecticut—are setting up state-run options. They’ll be requiring employers who don’t offer their own plans to connect workers to state auto-IRAs. The goal is to sign up workers and deduct contributions from payroll in ways that make saving much easier.

In the Golden State, for example, workers will be enrolled automatically by their employers and would put aside between two and five percent of their money into the plan, unless they opt out. Almost 7 million people could end up enrolling in California Secure Choice Retirement Savings Program.

Lawmakers must continue to look for real solutions that help everyday Americans better prepare for and have the means to enjoy their retirements.