Retirement savings is having a moment: New private and state 401(k) plans are on the rise

A recent webinar discussion explored the role of the retirement saving system and retirement policy in building wealth and financial security in the U.S., while identifying problems with the current system and how they can be addressed.

The event, “Reimagining How Retirement Savings Can Build Wealth for Everybody,” was part of the Aspen Institute Financial Security Program’s Future of Wealth Discussion Series. Speakers considered the shifting landscape of retirement savings and how leaders could create a more inclusive system.

Edmund Murphy, president and CEO of Empower, a provider of financial services, said collaborations between the private sector and the public sector to improve retirement policy have been constructive, pointing particularly to the SECURE Act and SECURE 2.0.

“I also think that the formation of the state auto-IRA programs have been equally constructive in terms of driving new plan formation,” Murphy said. “These mandates in the states have worked. They’ve spawned new 401k plans which I think is positive.”

Yie-Hsin Hung, president and CEO of State Street Global Advisors, said more public sector help appears necessary to close the retirement gap in the U.S.

“The underlying concern is that even though access is opening up, and we’ve seen great developments, we still have a lot more work to do,” Hung said. “And I think fundamentally, it’s a question of ‘Can the market really fulfill and address those 57 million Americans that don’t have access to a workplace retirement plan or is there more work needed in terms of a federal answer for this as much as we’re really delighted to see the states step up?’”

Murphy noted that many impediments to small plan adoption have been removed, including a tax incentive made available to small businesses to offset the cost associated with setting up a plan and the fiduciary safe harbor that has been granted to sponsors that “at least reduces the likelihood of small business owners being sued or held liable in setting up a plan.” In addition, the complexity of having a plan has been reduced through regulatory and policy changes and providers’ practices.

“We think there’s going to be a proliferation of small plan formation here over the next several years,” Murphy said. “And that’s a market that we think we can participate in effectively. There is a lot of innovation happening. There’s a lot of small venture-backed companies in the space now that I think are doing very positive work as well. So I’m encouraged that it remains a work in progress.”

Kathryn Anne Edwards, an economist, noted that “Social Security has its problems, but certainly one of them is just how much of a load it has to carry because everything else is also underperforming.”

“What we have also learned is that the private employers in the financial services sector have had 40 years of runway to prove that they will never give this to the bottom half of Americans,” Edwards said. “We can’t really expect it to change. Even the share of workers who have access to a 401(k) has not moved as much over time – it is a pretty fixed set of employees. So if we actually want all Americans to have access to retirement savings, it will not come from this.”

Edwards said policy should reflect the financial situations of the people the system serves.

“You almost want a system that treats workers and individuals equally, but at the same time the bewitching part is that you also want a system that knows that workers are really, really unequal – that people have one job versus five jobs, that they’re self-employed, that they do this over different periods of time,” Edwards said.

Yemi Rose, founder and CEO at OfColor, Inc., believes “we’re in a crisis right now, and we need a short-term solution.” Rose called the progress with emergency savings and SECURE 2.0 “very promising,” but said he believes employers should take a close look at who is taking the bulk of their hardship withdrawals and “ask themselves if their employees truly have an equal shot at a dignified retirement.”

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

“One of the key problems of the system is that it has done very well for a particular set of workers, just like white professional class, or people in a professional class that just happens to be predominantly white and more male, and anyone outside of it does not do as well, and that is a system that’s not working,” Rose said.

Leigh Phillips, president and CEO of SaverLife, discussed how the current retirement savings system is (and is not) relevant to the low- and moderate-income workers who lack access to it.

“We silo things a lot in the financial sector, right? ‘This is a retirement issue, this is a mortgage issue, this is something else.’ That’s not how people live,” Phillips said. “For most members of SaverLife, it’s not that people don’t know that they’re supposed to save for retirement – it’s that they cannot afford to. So if you’re going to kind of look at this from a balance sheet perspective, it has to be a look at the whole picture, and not just this one sliver of it.”