During his State of the Union Address, President Obama proposed a retirement savings bond program to reach low- and middle-income workers and others not saving for retirement. The myRA program, which would be run and backed by the federal government, tries to address one of the key issues challenging Americans’ retirement readiness: access to a workplace retirement savings program.
LIMRA LOMA Secure Retirement Institute (SRI) firmly believes all Americans should have access to a retirement savings program that encourages them to save systematically to achieve a financially secure retirement. Access to a workplace plan is important because payroll deduction is easy and convenient. Expanding access is a laudable goal. However, LIMRA SRI research shows that access alone will not improve Americans’ retirement savings behaviors.
Today, there are many ways to save for retirement – employer-based plans like 401ks and 403bs, as well as personal retirement savings vehicles like IRAs, and annuities. To make sure that people take advantage of these options, they should be easily accessible and designed to make it easy to make good (or appropriate) savings decisions. While the President’s proposed myRAs will add a new way to save, it doesn’t address the fundamental challenge facing existing retirement savings plans that SRI and others have uncovered – the failure of workers to participate.
Research indicates that the majority of full-time workers with access to a plan use it. But not everyone who has access to a plan is participating. LIMRA SRI research shows younger and lower income workers are less likely to save. Among those who have access to a plan but don’t use it, most say they can’t afford to save (47%), they have other savings priorities (16%), or that they haven’t gotten around to it (12%). Our research reveals that access coupled with automatic enrollment would significantly increase participation.
Canada has introduced personal retirement plans for employees whose employers do not offer any type of workplace savings plan. While the administration and investments of the plans are different from the proposal in the U.S., they were designed to solve the same problem. Our research shows, though, that interest in these accounts is lower than may be expected among workers who do not have access to a plan. Only 2 in 10 pre-retirees ages 40 to 54 were very interested in enrolling in a personal pension plan if available, while 3 in 10 expressed very little or no interest. Moreover, despite the fact that these plans have been in the news since 2009, almost a third (30%) said they were not very or not at all familiar with them.
Broad access is important, but not everything. Design matters. While education can help workers make appropriate decisions on how much they should save for retirement, behavioral finance research has been clear – people are far more likely to participate when they are automatically enrolled into a plan.
LIMRA SRI research finds that achieving retirement security is a top priority for most Americans. We are encouraged the President used the State of the Union to raise awareness about the need to systematically save for retirement and hope his Administration leverages the research available to effectively help Americans achieve a secure retirement.