Family Finances

Making Retirement Savings Part of an Equitable Recovery

May 21, 2021  • Financial Security Program

The worldwide pandemic that continues to upend the lives of every American laid bare vast inadequacies in the financial safety net. At the same time, the social justice protests that began in 2020 drew overdue attention to racial inequities in labor markets and the retirement system. Yet, amid this upheaval, small signs of progress have emerged. In late 2019, Congress passed sweeping retirement reforms, and legislators are already looking to build on them. In addition, an increasing number of states are stepping in to provide residents with better access to retirement accounts, and private companies continue to innovate. Still, 40 million Americans—primarily low-wage workers, small-business employees, and people of color—lack access to a workplace retirement savings plan. The need to close that gap is as urgent as ever—if not more so.

Over the past five years, the Aspen Financial Security Program has explored ways to devise a system that delivers retirement security to all. Its annual Aspen Leadership Forum on Retirement Savings brings together a diverse group of leaders from the financial services industry, non-profit sector, academia, and state and federal governments to discuss the challenges facing the U.S. retirement system, identify potential solutions, and work toward common ground. Though the Forum convenes privately in order to foster open and frank conversations, for the second year in a row it began with a session that was open to the public. At this April 15 virtual kick-off, panelists assessed the Forum’s progress to date, pinpointed emerging threats to Americans’ financial security, and mapped out the job ahead. The result was these five key takeaways:

1. It’s time to take a national approach to retirement savings solutions.

Since the Aspen Forum began in 2017, one of the most dramatic developments in financial security has been the emergence of state-facilitated retirement programs, which require most employers to automatically enroll their workers in a private or state-run savings plan or face a penalty. Fourteen states and one city—including auto-IRA pioneers Oregon, California, and Illinois—have rolled out or approved such plans, while legislators in 16 other states are considering similar programs. Now the question is whether a national savings mandate is called for.

The answer out of the Forum is yes. In a new Aspen Institute Financial Security Program survey of retirement experts, 77 percent of respondents voiced support for a federal law that secures access for all workers to a savings program through a payroll deduction. How such a universal coverage mandate takes shape remains up for debate, including whether the federal government should offer a default auto-IRA, but support for action on the federal level is broad. Legislation ensuring universal access, noted Catherine Reilly, director of retirement solutions, Smart USA, “is an important step toward improving retirement equity in this country.”

2. Racial inequities are inseparable from retirement insecurity.

Even before the pandemic exposed deep rifts in the country’s financial fabric, minority households were less prepared for retirement than others in this country. According to new research from Morningstar about the effects of the pandemic on financial security, just 39 percent of Black households had access to a workplace retirement savings account in 2019, compared with 46 percent of Hispanic households and 57 percent of white ones. But at the Forum event, panelists noted that the problems run deeper than access: Structural racism in the labor markets is also an impediment to closing the racial wealth gap. “Without equitable access to jobs, especially those that pay enough to save for retirement with employer-sponsored retirement plans, achieving equitable retirement savings is unlikely,” said Kilolo Kijakazi, deputy commissioner of the Office of Retirement and Disability Policy, Social Security Administration.

3. This is the moment to think big.

The 2019 passage of the SECURE Act proved that there can be bipartisan support for expanding retirement plan access. Now Congress is eyeing more reforms, including SECURE 2.0, which would expand automatic enrollment in 401(k) plans, allow employers to match student loan payments with retirement plan contributions, and more. Keynote speaker Richard E. Neal, chairman of the House Ways and Means Committee, spoke of even more ambitious aims. “It’s critical that we enact legislation that requires employers that don’t currently offer a retirement plan to, at minimum, provide for their employers with an auto-IRA,” Neal said.

Other panelists shared this appetite to embrace far-reaching policy goals, such as raising the minimum wage, issuing so-called baby bonds, and expanding and making refundable the savers credit. “We are focused on where we can get consensus,” said Elizabeth Kelly, senior vice president of growth, united income at Capital One. “But there is an opportunity to think bigger at this particular moment in time.”

4. It’s never been clearer that retirement planning needs to be holistic.

For several years, Aspen Retirement Forum attendees have discussed the role of emergency savings in retirement security and ways for companies to promote short-term savings. This past year showed just how crucial this buffer can be. “Emergency savings served as a financial lifeline for households who lost income during the pandemic, regardless of where they fell on the income spectrum,” said Morningstar CEO Kunal Kapoor. His firm’s research on the effects of the pandemic also illustrated the strong interplay between debt and retirement insecurity. In 2020, Morningstar found that medical debt was associated with 26 percent lower workplace retirement savings, and student loan debt correlated with 36.4 percent lower balances. The latter underscores the need for policy solutions at the federal level that combat crippling education debt.

5. We should move past thinking about access in the aggregate.

Conversations about retirement security often examine the issue in broad strokes: numbers of workers without access to plans, typical account balances, tallies of state laws. But time and again at this event panelists reminded the audience of specific segments of the population that deserve extra attention. That list includes not only communities of color, but also employees of small businesses, gig workers, parents who have left the workforce to care for children, older workers forced into early retirement, and undocumented workers. Nari Rhee, director of the retirement security program, at the UC-Berkeley Labor Center, pointed out that last year’s expansion of unemployment benefits represented more sophisticated thinking. “Self-employed workers were not eligible for all kinds of benefits,” Rhee said. “All of a sudden they realize you need to pay attention to this group and create a program just for them.” For real retirement security to be broadly shared, the conversation needs to home in on disparate groups, examining their discrete problems and customizing potential solutions.