Expanding Retirement Coverage

Social Security provides a secure and reliable foundation of income for millions of retirees. Nearly two out of three retired Americans rely on Social Security for half of their income and it is the only income source for one out of five retirees. Despite myths to the contrary, Social Security is 100 percent solvent, and without a single change, is completely funded until 2035, and then has enough money to pay 87 percent of its benefits for the next fifty years!

However, Social Security only provides the average retiree with $17,634 in income a year, not much more than the minimum wage paid to low income individuals at the start of their work lives. People need income from pensions and retirement savings plans to supplement Social Security.

The statistics tell a dismal story. In 2018, only a little more than half of all private sector workers – about 57 million – participated in a pension or retirement savings plan. Retirement coverage stagnation has been a stubborn and intractable fact for decades. For those who work part-time, the chances are low that they will participate in a workplace retirement plan. And what people earn tends to make a big difference. Only 25 percent of workers in the bottom fourth of earnings participate in an employer plan.

The lack of retirement plan coverage is one of the factors that results in the U.S. being ranked as one of the least adequate retirement systems among industrialized countries.

Increasing retirement plan coverage has been a long-standing PRC goal. We have launched several initiatives to further this goal and have participated in projects started by other organizations. Our initiatives have included:

• The Conversation on Coverage which brought together diverse stakeholders who developed three recommendations for increasing coverage.
• Retirement USA which spurred the development of 25 innovative proposals and came up with 12 principles to underlie a better private retirement system.
• Re-Imagining Pensions, an event where experts presented ideas for new retirement programs combining the best features of both traditional pensions and 401(k) plans.

Thanks to PRC’s work and that of the other organizations we work with, a number of proposals to increase retirement plan coverage have been put forward. Some are incremental, others are bold and visionary; some are small, others are large; some are mandatory, others are voluntary; some are at the proposal stage, others have been implemented. The challenge will be to find agreement on one or more approaches that have the potential to move the country to a more adequate and secure private retirement system.

There are a number of programs and proposals that seek to increase the number of people saving for their own retirement through workplace retirement plans. These include programs run by states for private sector workers, new tax incentives, and measures making it more attractive for employers to offer plans. 

State-run retirement savings plans for private-sector workers.

States around the country are undertaking to administer retirement savings plans for private-sector workers. Thus far 10 states and one city have enacted legislation authorizing these new programs. Most of these programs require employers who do not have other retirement plans to enroll their employees into Individual Retirement Accounts administered by the state. The employers are required to reduce the employees’ earnings by a specified amount and put the money in the state-run program unless the employees say they do not want to participate in the program. Another 33 states and another city are considering adopting similar types of programs.

A refundable Saver’s Credit for lower-income employees.

Currently, workers earning lower incomes can get tax credits for money that they put into an IRA or a 401(k) plan. This is called the Savers Credit. A problem is that many lower-income employees do not pay taxes. A “refundable” Savers Credit would give workers who contribute to retirement plans money even if they don’t pay taxes. Proposals for refundable Saver’s Credits have been included in proposed legislation.

Tax credits and pooled retirement savings arrangements for small employers.

Legislation is now pending that would provide new tax incentives for small employers to offer 401(k)s and other retirement savings plans and to allow unrelated employers to join together to offer pooled 401(k) plans sponsored by financial institutions.

The Pension Rights Center is committed to preserving traditional pension plans for the nearly 30 percent of people age 65 and over now receiving guaranteed lifetime benefits from private plans and the millions of workers now counting on receiving their promised pensions. At the same time, we recognize that because these plans place the risks, responsibilities, and costs of retirement saving on employers, many are now unwilling to offer these plans. For this reason, the Center is continuing to explore ideas for a new private retirement system. A number of concepts have been put forward, including a proposal developed by PRC. Most of these proposals include concepts of shared risk, contributions by employers and employees, pooled professional investments, lifetime payments, and independently trusteed programs. We would welcome hearing about others.

• Guaranteed Retirement Accounts is a proposal developed by the New School for Social Research that is supported by the Economic Policy Institute
• The USA Retirement Funds Act was a bill introduced into Congress by former Senator Tom Harkin (D-IA) and Senator Sherrod Brown in 2014 as (S.1979).
• The SAFE Plan, the Secure, Accessible, Flexible and Efficient Retirement Plan, is a concept put forward by the Center for American Progress in 2013.
• The Saving for the Future Act is a bill introduced into Congress in April, 2019 by Senators Chris Coons (D-DE) and Amy Klobuchar (D-MN) as (S.1053).
• Retirement Security Funds are an idea presented by the Pension Rights Center at our Re-Imagining Pensions conference in 2011

Although federal law requires that employers of nannies, housekeepers, and other household workers pay Social Security for their employees, there is currently no easy way for employers to supplement their employees’ Social Security payments.

PRC’s proposal for Household Worker SEPs addresses this problem. SEPs are Simplified Employee Pensions, the simplest form of employer funded pensions. The proposal would allow employers to take a tax deduction on their own income tax returns for money put into SEP-IRAs for their domestic workers.