This year, the retirement industry celebrates the 50th anniversary of the Employee Retirement Income Security Act of 1974 (ERISA), a law aimed at protecting American workers' retirement prospects by establishing minimum standards for private sector pension plans. The law has no doubt had significant impact on the retirement industry, however, there is more work to be done, according to Morningstar Center for Retirement & Policy Studies, which just published a new report.
"To quantify the impact of ERISA, we conducted an analysis of retirement outcomes assuming ERISA was never enacted," said Spencer Look, Morningstar's associate director of retirement studies. "To accomplish this, we excluded individual account plans (i.e., IRAs and DC accounts) in our projections, as ERISA created IRAs and contributed to the shift from DB to DC plans. The exclusion of individual account plans led to significantly lower savings levels, compared to our baseline results, which is why we found that a significant larger percentage of households would run short of money in retirement in this analysis."
Recommended For You
Of course, the shift from defined-benefit to defined-contribution plans during the last 50 years has significantly impacted the landscape for employer-sponsored retirement plans in the United States, according to the Morningstar report, The Evolution of Retirement-Income Adequacy Under ERISA With a Focus on Defined-Contribution Plans.
Morningstar, which examined potential retirement inadequacy among American workers using the Morningstar Model of US Retirement Outcomes, points to two other key findings that will have significant impact on the future of the retirement industry:
- Transitioning from voluntary to automatic enrollment in DC plans, coupled with auto-escalation features of up to 15% of salary, could increase average wealth ratios by over 28%. "Intuitively, our analysis indicates that plan sponsors may want to consider adding an auto enrollment feature coupled with auto escalation to boost projected wealth at retirement," said Look.
- The Automatic IRA Act of 2024, proposing automatic enrollment into IRAs with opt-out features and auto-escalation, could substantially improve retirement outcomes, with an aggregate average wealth ratio increase of 23.8%.
The Automatic IRA Act of 24, which follows the lead of nearly 20 states that have mandated programs to help workers save for retirement, was re-introduced into the House earlier this year by Rep. Richard Neal (D-MA), ranking member of the House Ways and Means Committee.
The legislation, if passed, would require employees to automatically be enrolled in an IRA or other automatic contribution plan or arrangement, such as a 401(k). The legislation would create a new tax credit of $500 per year for three years for employers of up to 100 employees that offer either a state or national automatic IRA, in addition to other existing tax credit.
"Automatic IRAs are simple, effective and proven tools to help more workers save for secure retirements," Rep. Neal said. "Across the country, many state automatic IRAs are demonstrating that automatic IRAs not only work in increasing savings rates but also help close racial, gender and income savings gaps, and it's past time for the federal government to expand this success to all Americans."
"The Automatic IRA Act of 2024 could help workers by expanding access and participation in a retirement plan," said Look. "Many workers without access to a retirement plan through their employer could benefit from being automatically enrolled into an IRA."
Related: After 50 years of milestones, the retirement industry is bracing for yet more innovation
The Morningstar analysis also revealed stark differences in retirement readiness based on family status, race and ethnicity, industry, and participation in DC plans. Single females, Hispanic Americans, and non-Hispanic Black Americans are at a higher risk of retirement shortfalls. "The path forward requires thoughtful policy interventions, robust retirement plan designs, and a commitment to improving retirement outcomes for all," concludes the report.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Lynn Cavanaugh
Lynn Varacalli Cavanaugh is Senior Editor, Retirement at BenefitsPRO. Prior, she was editor-in-chief of the What's New in Benefits & Compensation newsletter. She has worked for major firms in the employee benefits space, Vanguard and Willis Towers Watson, as well as top media companies, including Condé Nast and American Media.
