Why 401 (k) plans will not fix the US retirement crisis

Kyla Ernst-Alper, a 38-year-old New York airline performer, never had a 401 (k) retirement plan.

She has several jobs at the same time to support herself and none of them offer her retirement options. She keeps what she can in an individual retirement account, but these savings are not always consistent. This is due to his line of work, which was particularly hard hit when live shows were canceled due to the public health crisis.

“Before the pandemic, people in my community could barely pay their bills,” Ernst-Alper said. – You’re in luck if you can save money.

401 (k) is framed today as the main way to save Americans for retirement, especially as traditional pensions are becoming less common. However, a large proportion of workers, especially low-income people, women and people of color, are left behind by lack of access to plans.

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Overall, about half of private sector workers are not covered by an employer-sponsored retirement plan, either because their company does not have one or because they are not eligible for the one offered, according to the Boston College Retirement Research Center. . In addition, an increasing number of American workers are generally unable to access a 401 (k) because they are contractors or self-employed.

Those who do not have access to an employer-sponsored plan may be left without benefits, such as equal employer contributions or employee self-enrollment. As a result, 1 in 4 American workers does not even have $ 10,000 saved for retirement.

“For many demographic groups, the typical working-age household either has no savings in their retirement account at all, or just a trivial amount,” said Monique Morrissey, an economist at the Institute for Economic Policy on the left.

Certainly, experts say that while 401 (k) plans have their problems, they should not be interrupted. When used, they can be powerful savings tools – the average 401 (k) holding of a 20-year-old investor in 2019 was $ 10,500, according to Fidelity. The 30-year-olds saved an average of $ 38,400, while the 40-, 50- and 60-year-olds averaged $ 93,400, $ 160,000 and $ 182,100, respectively.

“I don’t mean ‘Get rid of 401 (k) plans,'” said Steve Vernon, a consulting researcher at Stanford Center of Longevity. “I just want to say they need to be improved.”

This improvement should take the form of greater access, said Nevin Adams, director of content for the American Association of Retirees.

Indeed, when people are given the chance to save in a 401 (k), they take it. According to a survey conducted by the Plan Sponsor Council of America, nearly 90% of employees who had access to a 401 (k) workplace in 2019 contributed to their plan

Here’s who’s leaving the plans behind. (Many people fall into several categories.)

Large companies are much more likely than small companies to offer their workers a 401 (k) plan, said Catherine Collinson, CEO and president of the Transamerica Center for Retirement Studies.

While 92% of companies with 500 or more employees offered a 401 (k) or similar plan in 2019, only 57% of companies with less than 99 employees did so, according to a Transamerica Center survey.

“Employers who don’t offer plans tend to be new, small, have relatively few employees and / or hire a temporary, temporary, part-time and / or lower-wage workforce,” says Angie Chen, deputy director of research. of savings at the Center for Retirement Research at Boston College, he wrote in an email.

Many of these workers do not have time to advocate for change.

“These employees often have pressing financial needs that typically preclude any application for retirement security from the employer,” Chen said.

People on higher incomes are much more likely to be offered 401 (k) at work than those on lower incomes, which only exacerbates the inequality of retirement savings.

More than 70 percent of workers with household incomes over $ 100,000 have access to 401 (k), compared to 50 percent of those with household incomes under $ 50,000, Transamerica found.

“Income disparities and access to pensions suggest that lower-income workers will inevitably rely on social security for a larger proportion of their retirement income,” Collinson said. (The average social security check is under $ 1,400.)

“They will face a higher risk of poverty when they retire.”

401 (k) plans are largely associated with traditional full-time employment.

However, research has found that the share of American workers employed in temporary or unstable work is growing rapidly.

Many of these workers who earn their living through applications or work only for companies independently will not have access to a company retirement plan. Indeed, only 41% of part-time workers received a 401 (k) plan from their employer, the Transamerica survey found.

Although it is possible to establish and contribute to the so-called solo 401 (k) without preventing you from automatically joining or signing up with an employer, many concert workers drop out of these options.

Cincinnati’s Danny Samet has always worked independently as a tour manager and merchandiser for bands, jumping from one concert to another. He never saved in a company-sponsored retirement plan, he thought he made what he could in a few different IRAs.

In his industry, he said, most people have no savings for the past few years.

“There are a lot of people who are not preparing for retirement,” said Samet, 28.

Blacks and women are more likely to work in industries or jobs that do not give them access to an employer-sponsored plan, according to John Scott, project director of pension savings at Pew Charitable Trusts.

They also generally produce less than white men, which usually means they can save less time.

Half of white working-age households have access to a 401 (k) or similar plan at their current job, compared to 37% of black households and 26% of Hispanic households, according to EPI.

Jenny Lezan of Naperville, Illinois, does not qualify for a retirement plan at the school where she teaches because she is an adjunct teacher.

“I am considered a contract worker,” said Lezan, 35. “I don’t have retirement funds right now, which is kind of terrifying, to be honest.”

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