Despite $26 trillion in U.S. retirement savings, only half of American workers between ages 25 and 64 participate in employer-sponsored retirement plans and 53% of face a substantially reduced standard of living when they retire, according to the new book “From Here to Security: How Workplace Savings Can Keep America’s Promise.”

In addition, Social Security, which is not included in that $26 trillion figure, is facing a shortfall that could lead to a cut of more than 20% in benefits by early 2034.

That’s equal to $4.13 trillion in present value, according to Harry J. Conaway, the CEO of the Employee Benefit Research Institute (EBRI), one of several panelists participating in a retirement policy forum Monday in New York.

“The retirement savings challenges are real … [but] the goal of achieving retirement security can be met," said Robert L. Reynolds, author of “From Here to Security” and CEO of Putnam Investments and Great-West Financial, which owns Empower Retirement, the country’s second largest retirement services provider. “We know what works… There’s no need to reinvent the wheel.”

In his new book, which served as the kickoff for today’s forum, Reynolds stressed the need for all workers to have access to retirement plans (twenty-nine million households currently do not have access, though 46.5 million do, according to a 2016 Empower Retirement study).

He also laid out the components of what he calls Workplace Savings 4.0, retirement strategies that have proven to maximize savings:

auto-enrollment for new employees and existing employees who haven’t contributed
auto-escalation of contributions up to 10% or more
income and age-appropriate investments such as life cycle (target date) funds and balanced funds

Adding auto-enrollment to a retirement savings plan boosts the median replacement of employees’ pre-retirement income from 79% to 92% of pre-retirement income, according to Empower Retirement’s Lifetime Income Study, cited in Reynolds’ book; including auto-escalation raises replacement percentage to 100% or more.

Currently, only about 58% of defined contribution plans currently offer auto-enrollment, and about half of them limit auto-enrollment to new hires, according to Reynolds’ book. Far fewer offer automatic escalation of contributions – just 22% of plans with 5,000 or more participants and 12% of smaller plans.

The strategies included in Workplace Savings 4.0 would impact more than savings and security. They would also help promote stronger economic growth as more monies enter the capital markets and reduce the growing wealth gap in America, according to panel members.

They all favored some type of national policy to promote these and other strategies to boost retirement savings, including changes in Social Security, but acknowledged that tax reform initiatives in Washington could pose a potential setback.

“100% Rothification of the 401(k) market would be very detrimental to the system. I would be totally against it,” said Reynolds, referring to Washington talk about replacing the current system of pretax contributions to 401(k) plans with aftertax contributions, as in Roth retirement savings plan. Congressional members are reportedly considering the change to help pay for tax reform, making up some of the lost revenue from tax cuts.

But Reynolds noted contributions to 401(k) plans are not tax free, but tax-deferred; taxes are paid when funds are withdrawn. “It’s not right to think of them as revenues lost forever,” said Reynolds, noting that this view reflects in part the 10-year budget scoring that Congress uses.

He said he could possibly live with a system that combines about $9,000 in pretax contributions with the rest as after-tax contributions.

EBRI is in the process of studying the impact of potential alternative scenarios to the current system, according to Conaway.

Instant Insights /

How workplace plans can save retirement: Robert Reynolds

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