Retirement Savings for Americans Act: Increased access, but worse retirement outcomes?

The Retirement Savings for Americans Act (RSAA), introduced to Congress in 2022, before SECURE 2.0 became law, and then reintroduced again in 2023, aims to expand retirement coverage for American workers by creating a federal retirement plan for those not covered by their employer. However, the Morningstar Center for Retirement & Policy Studies has published new research, which finds that the RSAA would likely lead to worse retirement outcomes for most Gen Z and millennial workers.

“The Retirement Savings for Americans Act would likely change investor savings behavior and plan sponsor behavior,” Spencer Look, associate director of retirement studies at the Morningstar Center for Retirement & Policy Studies, explained. “For example, employers would be less likely to offer a plan because the proposal’s federal match tax credit would effectively subsidize some portion of the employer’s contributions. This impacts retirement-income adequacy because savings rates in defined contribution plans are a lot higher than the bill’s 3% default rate. This is also true for lower-income workers.

“The bill would likely improve outcomes for workers without access to a plan throughout their career, but to be clear, these benefits would come at the cost of retirement prospects for others.”

The RSAA would establish a new program that gives workers access to portable, tax-advantaged retirement savings accounts with federal matching contributions for low- and middle-income workers.

The bill contains these provisions:

Auto-enrollment: Full- and part-time workers without access to an employer sponsored retirement plan would be automatically enrolled in the federal retirement account at a savings rate of 3% of their income.Independent and gig workers would also be eligible.

Federal match tax credit. Low- and moderate-income workers would be eligible for a federal match tax credit, consisting of a 1% non-elective contribution and a match of 100% up to 3% and 50% up to 5%. The match tax credit would be deposited directly into the retirement account. The federal match begins to phase out at median income.

Portability. Accounts would be portable, as accounts would remain attached to workers throughout their lifetimes.

Private assets. Accounts would remain the sole property of the worker, and the assets could be passed down to future generations to help build wealth.

Investment options. Various low-cost investment options would be provided, including target-date funds and index funds.

Related: Could a whole new government-backed program close the retirement savings gap?

The majority of Gen Z and millennial workers would be better off with the status quo, according to Morningstar. Under the RSAA, the median wealth at retirement age could decrease by as much as 20% for Gen Z workers and 12% for millennial workers. This occurs because the RSAA would likely crowd out the private retirement plan market to some extent by subsidizing contributions for lower-income workers, according to the report.

The RSAA would boost retirement outcomes for workers not covered by an employer-sponsored plan, but this benefit would be offset by larger decreases for those covered in the status quo.  “We find that workers without any future years of participation in a DC plan or with limited future participation (one to nine years) would generally benefit from the RSAA,” according to the report. “Retirement outcomes are also better for industries with fewer employers offering plans. This is because the RSAA would automatically enroll workers without access to an employer-sponsored retirement plan into the federal program. However, for workers with 10 or more years of future participation in a DC plan, the RSAA would result in significantly worse outcomes, particularly for those with 20-plus years of future participation.”

While the Retirement Savings for Americans Act “has bipartisan support, it does not seem likely that it will move forward at this current time,” said Look.