Saver’s Match: New SECURE 2.0 program could close the wealth gap in 401(k)s

A new report on Saver’s Match, a program designed to address racial disparities in retirement saving among workers, has more clearly defined the benefits of the new program when it goes into effect in three years. The report from the Morningstar Center for Retirement and Policy Studies found that workers may be able to see “profound” increases in the amount they have saved at retirement, if they take advantage of the Saver’s Match program.

Saver’s Match, part of the SECURE 2.0 legislation, starting in 2027 will directly deposit matching funds in retirement savings for workers in certain categories, primarily lower-income workers.

The new research builds on earlier studies, and shows new evidence that the program will reduce disparities for lower-income workers—often female and Black workers—who have been found to see lower retirement savings compared to other employees.

“In theory, the Saver’s Match should be a more effective policy tool designed to address the retirement savings gap for low- and middle-income earners by directly encouraging and rewarding contributions. This will likely have a key role in mitigating existing race/gender disparities in 401(k) plans,” the report said. “When results are combined for all ages from 25-64, we find that for those individuals eligible for the new program when it begins in 2027, the increase in the account balance/salary ratios at age 65 can be as high as 21.4% to 33.7% [when the match is maximized], … In general, the results are even more positive for the youngest participants who will have more time to benefit from the program.”

A course correction on credits

Researcher Jack VanDerhei, director of retirement studies at Morningstar, noted that a form of this program has been effect since 2002, when the Saver’s Credit went into effect. That program has been available to eligible workers, providing a maximum credit of $1,000 annually per person and $2,000 per married couple filing jointly.

However, the program did not work well—in part because the lower-wage workers who were eligible often did not have enough income to pay federal income taxes to start with, so a tax credit was not meaningful. Even when the credit resulted in extra money, it was not deposited directly into retirement accounts—people could spend it however they chose.

The SECURE 2.0 law sought to address this by changing the credit to a match—using federal funds that have an automated direct-deposit feature for qualifying workers.

The report noted that the new Saver’s Match will offer a 50% match on the first $2,000 of retirement savings contributions for participants, with income thresholds and a phaseout range for those whose earnings reach a certain point. The funds will come from federal monies, and not require additional matching from the employer.

A free tool to address disparities

Morningstar, along with other groups, is part of the Collaborative for Equitable Retirement Savings (CFERS). The report outlines how CFERS will use this research to offer a platform and tools for employers, recordkeepers, and others to put the new system to work.

The new report is based on records and data from more than 180,000 plan participants who are part of the CFERS group. The data was run through alternative scenarios to model what the impact of the Saver’s Match would be on employees currently in the system.

Related: Saver’s Match: New employer 401(k) option that expands access for low-income workers

According to VanDerhei, the Saver’s Match could go much further toward addressing the savings disparities seen today—but he said people in the industry should work hard to educate both employers and employees on how to take advantage of the program.

“Beat the drums,” VanDerhei said, adding that it was especially important to get the word out to employers, who can then see that eligible employees learn about the program. “We need to say, ‘Hey, there’s something here that is tremendous for some participants. It doesn’t cost you anything,’ but you have to educate the employees enough so they’ll take advantage.’

CFERS hopes to do this in part by getting more employers to joining the collaborative. VanDerhei noted that there is no cost for the data analysis the collaborative provides companies. “We plan to give plan-specific analysis to employers who have contributed data to this project,” he said. “And hopefully that will create incentives for them to educate their employees.” “The main benefit for employers is for them to get a better understand the Saver’s Match program starting in 2027 for eligible employees,” VanDerhei said. “And if they are trying to mitigate to address racial disparities in their program, this goes a long way towards doing that.”