When thinking about designing a retirement savings system that is inclusive of all Americans, industry experts who spoke at a webinar held by the Aspen Institute on Monday recognized the progress that has been made with the SECURE 2.0 Act of 2022 and state-facilitated retirement programs.  

However, they also argued that much more work needs to be done for the system to serve low-income Americans and people of color. 

Edmund F. Murphy III, president and CEO of Empower, said the collaboration between the private sector and public sector has been effective in expanding access to retirement savings, as the formation of state auto-IRA programs has motivated many companies to offer their own 401(k) plans.   

“I think there’s been really strong collaboration with the private sector working with Congress and regulators to try to advance policy in a way that perhaps isn’t as common in other areas,” Murphy said. 

Yie-Hsin Hung, president and CEO of State Street Global Advisors, added that the creation of multiple employer plans, including pooled employer plans, as well as new tax incentives, under SECURE 2.0, for small businesses to set up plans and make employer contributions have also expanded access to retirement savings. 

“Yet at the same time, the underlying concern is that even though access is opening up, and we’ve seen great developments, we still have a lot more work to do,” Hung said. “And I think fundamentally, it’s a question of, can the market really fulfill and address those 57 million Americans that don’t have access to a workplace retirement plan? Or is there more work needed in terms of a federal answer for this?” 

Hung voiced her support for a federal mandate that would require employers to automatically enroll and automatically escalate employees into a retirement plan, especially as small businesses disproportionately struggle to get people enrolled in a plan.  

Where the 401(k) Falls Short 

During the second half of the Aspen webinar, panelists discussed their thoughts on a recent New York Times article, “Was the 401(k) a Mistake?,” which highlighted the access gap, as well as low contribution rates. 

Economist Kathryn Anne Edwards said she found the headline of the article misrepresentative because it implied that 401(k)s were planned at all.  

“They were not designed with purpose,” Edwards said. “It’s not like the federal government sat down and was like, ‘we are going to put a massive amount of tax revenue toward subsidizing elective retirement accounts offered by employers.’” 

Edwards argued that the 401(k) taught workers how to accumulate wealth, but she said the private sector still fails to provide access to these plans to the bottom half of workers—referring to low-wage earners. 

“The problem with the current system is that the 401(k) is a benefit to people who have access to it,” Edwards said. “So, the top half gets a 401(k), and the bottom half gets told that they need financial literacy training.” 

Yemi Rose, founder and CEO of financial wellness platform OfColor, said he found the article “sobering,” but was glad that it pointed out issues of access to 401(k) plans. He argued that asking participants of color, in particular, to guide their own retirement savings “was a mistake.” 

Even with target-date funds, Rose explained that even though they reduce complexity, glide paths are typically not designed for workers of color. 

“When you add in lower contribution rates, the typical glidepath is going to be way too conservative when a [participant of color] hits [age] 45 or 50,” Rose said.  

Leigh Phillips, CEO of the nonprofit SaverLife, added that the existing system is not designed for workers who have multiple jobs, are self-employed or participate in the gig economy. She said many of the users of the SaverLife fintech platform, which aims to improve the financial health of people living on low-to-moderate incomes, understand that they need to save for retirement, but they simply cannot afford to. 

“I know it’s frustrating to say that we need to increase people’s wages and have a better health care system, but that’s also the reality,” Phillips said. 

Beyond improving plan design with features like automatic enrollment and emergency savings accounts, Edwards said there are issues outside employers’ power that require the federal government to address to help workers save for retirement. For example, she emphasized that the high cost of childcare significantly affects the ability of many people—particularly women—from saving for retirement, as childcare could cost upwards of $50,000 per child.  

Additionally, if parents decide not to pay for childcare and stay at home, this could result in a loss of earnings and the corresponding retirement savings if they are not employed or participating in a plan. Edwards said this is a “clear policy problem with a clear solution,” arguing that retirement savings should begin at birth, referencing the idea of Baby Bonds.  

Rose argued that the progress from SECURE 2.0 regarding emergency savings accounts is “very promising,” but in the short-term, he said employers need to focus on auto-enrollment, auto-escalation, as well as tracking the number of Black and Hispanic employees that are participating in the plan. But even if all of this is done, Rose said many workers will still rely heavily on Social Security.  

Phillips said insufficient income and inconsistent income are the biggest barriers to retirement security, as well as the high cost of living and high personal debt levels. Ultimately, she argued that too much risk has been shifted toward individuals and that it is time for the federal government to step in.