Growing numbers of American families are heading toward retirement without enough savings to maintain their standard of living. This gap in savings, which according to one analysis exceeds $6 trillion, is largely driven by a lack of access to savings plans at work. What are the main causes of this gap, how does it impact working families, and what are the possible solutions? How can reforming the tax code help expand opportunities to build wealth for all American households? At a recent event hosted by the Aspen Institute Initiative on Financial Security (IFS), AARP, and the Corporation for Enterprise Development (CFED), two panels of retirement policy experts discussed the coverage problem and promising innovations to increase access to retirement savings.
Senator Orrin Hatch (R-UT), Chairman of the Senate Finance Committee, kicked off the event by highlighting his proposed legislation, the Secure Annuities for Employee Retirement Act (SAFE Act). The SAFE Act is designed to increase retirement savings coverage by establishing a start-up 401K for small-businesses and by removing barriers for small-businesses to join multiple employer plans. “It’s a proposal that takes direct aim at the current coverage gap,” said Hatch.
Watch the video clip of Hatch’s introduction below
In the first panel on dimensions of the coverage gap, David Buchholz of the Federal Reserve Board, presented some sobering statistics. “Fifteen percent of those over sixty say, I’ve got nothing – I don’t have savings, I don’t have a pension, I’m not counting on Social Security,” Buchholz said. Cy Richardson from the National Urban League connected the racial gap in retirement savings to the broader wealth gap conversation. “There are societal and historical factors at play,” said Richardson. Eric Rodriguez, from NCLR, agreed that the “barriers to retirement savings for Latinos are structural and systemic, they’re not cultural.” Jeremie Greer, VP of Policy and Research at CFED, noted that complicated and risky product structures, lack of access to automatic options, and low incentives are barriers to retirement savings.
The second panel focused on promising policy solutions to expand coverage, many of which involve tax reform. Mark Iwry, Deputy Assistant Secretary at the US Treasury, explained how the myRA program can “bring current non-savers into the system” by offering a low-risk, simple retirement savings plan. The myRA program “is intended to provide a bridge to the private sector options,” said Iwry. Jamie Kalamarides, Senior VP of Institutional Investment Solutions at Prudential, presented new research highlighting the gap among employees of small businesses—a critical source of employment for communities of color and women—and recommended reforming the tax code to expand access to multiple employer plans. Dr. Debra Whitman of AARP offered encouraging news of states expanding retirement coverage. “Half of the country is looking at expanding coverage and talking about it in real ways,” Whitman said. Twenty-six states are using a variety of approaches to fill the coverage gap, including “auto-IRA-like” plans, “Secure Choice” plans, and retirement product “marketplaces.”
A strong consensus on the panel emerged in response to comments from the American Retirement Association’s Judy Miller, who proposed replacing the current Saver’s Credit with a government match. A 50% match on retirement savings deposited directly into the user’s retirement account would “provide an incentive for people to save and grow their savings more rapidly,” said Miller. Additionally, the $3-5 billion cost of a government savings match would be “a drop in the bucket” compared to the $200 billion of proposed tax expenditures. Miller’s co-panelists responded very positively to this proposal. Whitman noted that the match would complement state programs, giving “workers who do save an added bump.” Kalamarides added, “Small businesses like it too, because small businesses’ cash flows are unpredictable.” Iwry liked that “the government match steps in, in lieu of an employer match… I think it’s terrific.”
The Institute’s Initiative on Financial Security has written in depth about savings matches for low and moderate income households, and the idea resurfaced at last year’s Financial Security Summit. Panelists were hopeful that a simplified and refundable version of the saver’s credit would be among the recommendations coming out of the Savings and Investment working group co-chaired by Senators Mike Crapo (R-ID) and Sherrod Brown (D-OH), which are due to the full Senate Finance Committee at the end of May.
Watch the video clip of discussion of the government match below
Options for Expanding Retirement Coverage: Critical Issues for Reforming the Tax Code will feature welcoming remarks from Chairman Orrin Hatch on the role of retirement savings in the debate on tax reform, and a host of noted retirement experts from diverse perspectives in two panel discussions: the first will explore the causes of the retirement coverage gap and its impact on working families; the second will focus on an emerging consensus around solutions that have the potential to expand retirement savings for millions of American families.