Retirement Saving Coverage Gap

Recent Perspectives articles have called attention to the newly passed SECURE 2.0 Act of 2022, which initiated several retirement plan changes and enhancements. A key focus of this legislation is to expand coverage and retirement savings for those who are not taking advantage of their 401(k) or who do not have access to a corporate retirement plan whatsoever. Some of the numerous steps to expand and enhance American retirement savings over the coming years include expanding auto enrollment, enhancing tax credits for start up plans, and enhancing the savers credits. Still, some believe a whole new system would be helpful to solve the ever present savings gap.

Enter The Economic Innovation Group (EIG), a public policy organization dedicated to advancing solutions that empower entrepreneurs and investors to forge a more dynamic and entrepreneurial economy throughout America. EIG was founded by Sean Parker, the former president of Facebook (now Meta); John Lettieri, former public policy head for the Organization for International Investment; and Steve Glickman, who served as a senior economic adviser during the Obama administration. Michigan’s own Dan Gilbert, founder and Chairman of Quicken Loans, has even recently joined EIG’s Founders Circle.

EIG has recently been making noise on the national scene by proposing a new retirement saving program modeled after the federal Thrift Savings Plan, which is a 401(k)-like program enjoyed by federal employees. EIG’s stated mission is to provide a government supported retirement option for the tens of millions of workers not currently being served by private retirement plans, rather than supplanting those existing workplace plans. Their proposal, in its simplest form, mandates that any eligible worker would automatically be enrolled into this government subsidized program and receive direct credits and federal matching contributions. Beyond being extremely well funded, EIG has hired prominent D.C. lobbyists and PR firms that have catapulted their initial retirement savings ideas into the enviable position of bipartisan support.

Of course, enacting a whole new government backed program is far from a panacea. Critics of the EIG initiative quickly cite the numerous dangers of bringing the federal government into the retirement savings industry. For starters, federal government programs have a way of quickly burgeoning out of control, causing runaway spending and unplanned taxpayer obligations. Look no further than the financial state of our current Social Security and Medicare systems to see how the noble cause of caring for retiring Americans can lead to unacceptable trade-offs between public policy and taxpayer interests. And then there is the debate of federal government entering competition against the private sector within the American retirement system – a debate that parallels with the well-worn argument of public versus private health care coverage. Perhaps the most direct rebuttal is urging policymakers to not push for a new system until SECURE 2.0 has had a chance to continue bridging the retirement savings gap. After all, this sweeping legislation just passed in December of 2022 and aspires to bridge the savings gap through a combination of incentives and mandates.

Despite the numerous saving gap enhancements recently passed through SECURE 2.0, there are concerns that too many Americans have still yet to engage the current retirement plan system. The debate will continue as to whether the retirement plan system that we know should continue to be controlled by the private sector, as it is now, or if the federal government will intervene and start taking over. To be sure, no new retirement plan system is likely to be created within the next few years, but the EIG initiative does have bipartisan support. The private sector system needs to continue decreasing the coverage gap by getting more Americans to save and at higher saving rates. In the meantime, everyone can agree that retirement savings is paramount for all Americans. The 401(k) is the poster child for doing a good thing (saving) on repeat in order to achieve a great result (retiring with dignity). Greenleaf Trust is committed to that charge and continues to help as many American workers achieve that goal.