Labor Economist Says 401(k) Era Is Ending

Labor economist, policy consultant and TikTok creator Kathryn Anne Edwards, in a recent webinar with the National Institute on Retirement Security, argued that 401(k) plans alone are failing to solve the retirement crisis in America and that the federal government needs to take a more active role in provide access to retirement savings. 

Edwards, known for her ‘direct style’ in addressing questions related to economic and social policy on TikTok and in columns for Bloomberg, described the concept of economic security in retirement as “the report card”—a cumulative and comprehensive performance measure of an individual’s economic experience over their lifetime. 

With just 31% of Americans and only 40% of those 60 and older feeling on track with their retirement savings, Edwards said if retirement security is a report card, “this is a failing grade.” Half of Americans also do not have access to a retirement account at work, and about half do not have a retirement account at all, Edwards said. As a result, she argued the federal government should take a more active role in retirement policy. 

“It’s really left to employers to decide what to do, and the government regulates, endorses, subsidizes or safeguards, but it does not lead [retirement policy] in that sense,” she said. “I think [with] this retirement crisis that that we’re coming to … it’s time to lead.” 

Edwards argued the government should stop subsidizing 401(k) accounts (by making contributions tax-deductible), because she says it uses about 1% of the country’s GDP (in potential, unrealized taxes) to benefit the retirement savings of the wealthiest 25% of Americans.  

She instead supports the bipartisan Retirement Savings for Americans Act, which would offer a program similar to the Federal Retirement Thrift Savings Plan. It would essentially give all American workers access to portable, tax-advantaged retirement savings accounts, with federal matching contributions for certain low- and middle-income workers.  

“I think the most successful version of this plan is that every worker, as soon as [they] get their first paycheck, gets access to a thrift savings plan account, and the government contributes on [the worker’s] behalf,” Edwards said. 

She argued that the “age of 401(k)s is coming to an end” and cited IBM’s move last year to freeze its 401(k) contributions and reopen a cash balance plan, as well as BlackRock CEO Larry Fink’s comments about “rethinking retirement” and the drawback of defined contribution plans putting too much of the burden of savings and drawdown on employees.  

While Edwards also voiced support for state-facilitated auto-IRA programs, she argued that “state policy alone will not be sufficient,” and if it is left to state governments to adopt a program, at least 20 states, particularly those in the South, will “never have it.” She added that these are also states where a disproportionately large number of Black and poor Americans live.  

Threat of Social Security’s Depletion 

A major threat to Americans’ retirement security is the depletion of Social Security’s trust fund, Edwards explained, as it faces a 75-year shortfall.  

“This means that if you add up the revenue that Social Security is projected to receive over the next 75 years and you subtract benefits that Social Security is projected to pay over the next 75 years, there’s a gap,” Edwards said. “What’s remarkable about Social Security is that because it is projected 75 years in the future, we have seen this gap coming for three decades.” 

Every year that Social Security is not fixed, the problem gets more expensive, Edwards said.  

“This definitely adds to the perception that Social Security is somehow deteriorating, because the 75-year projection is getting worse, although that’s really a mechanical function of waiting so long to fix the problem,” Edwards said. 

She added that another common misunderstanding when it comes to Social Security is that the shortfall is driven by population issues, with the argument being that Baby Boomers were such a large generation, and their retirements and longer lifespans are depleting  the Social Security fund for future retirees. Edwards argued, however, that Social Security sustainability is built on wage growth, not population growth.  

“The reason why one generation is able to afford, in a pay-go system, the retirement of a prior generation, is because their total wage bill is larger than the wage bill of the people that retire, because wages should always be rising in the U.S. economy,” Edwards said. “We have hit some very large road bumps when it comes to wages, and so the number of workers times the amount they’re earning is two sides of an equation. It’s the amount they’re earning that is deteriorating Social Security more.” 

When the trust fund starts depleting, benefits will be automatically cut by around 20% in order to ensure 75 years of stability, but Edwards said she doubts Congress would let this happen and that reform is coming.  

A recording of the full webinar can be found here.