Five years ago Congress enacted modest improvements for employer-sponsored pension and 401(k) plans. Since President Bush signed the Pension Protection Act of 2006, little progress has been made in narrowing the nation’s retirement savings deficit. Most workers are simply not saving enough over their life course to supplement the meager benefits they will receive from Social Security. America’s real retirement security crisis is not Social Security solvency or the many big firms freezing or terminating their traditional pension plans. The larger problem is that the majority of American adults do not participate in any retirement saving plan—whether pension or 401(k) or Individual Retirement Account (IRA). Participation in employer-sponsored plans peaked in the late 1970s and appears to be at its lowest level in more than 30 years. Employer-sponsored plans cover fewer than half of all private sector workers, leaving a projected majority of baby boomers and Generation Xers even more dependent on Social Security than their parents’ generation is today.
This paper explains our retirement security crisis by describing the limitations of the existing employer-based system and the extent of the current household savings deficit. It then presents a critique of an alternative “Automatic IRA” proposal, supported by President Obama, and identifies five additional features that would dramatically strengthen the proposal. One conclusion that should be abundantly clear: Now is the time to face up to the nation’s retirement savings deficit and focus policy efforts on making sure that all Americans are included in a retirement security system that is capable of helping everyone save over their life course and to achieve a secure retirement.
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