America has a retirement savings crisis.
Nearly half of working-age households can't continue their current standard of living in retirement, according to data from the U.S. Federal Reserve's Survey of Consumer Finances. People are living longer, and traditional pension plans are vanishing, hurting the chances for people to save enough to live comfortably in retirement.
What's more, employer-sponsored 401(k) plans are falling short in helping people save for retirement. According to The Pew Charitable Trusts, more than a third of private-sector workers don't have access to an employer-sponsored retirement plan. Of those, only about half take advantage of it. And many of those who do take advantage of a 401(k) plan fall victim to high fees, confusing fund lineups and lack of clarity around what the impact of their investment decisions will be in the long run.
The powers that be in Washington must take action to prevent the retirement crisis from getting even worse.
Sadly, sweeping retirement regulation changes may not be realistic. We saw this recently with the Department of Labor's fiduciary rule. That rule required retirement-plan advisors to act in investors' best interests, and it was struck down by the courts. Many in the retirement industry fight for policy changes like the fiduciary rule, but when revenue is at stake for companies that don't benefit from regulatory changes, their lobbying and political support arms win.
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Today's political climate is riddled with disagreement — and if retirement policy is not absolutely crucial for a politician's platform, the issue will be passed on to someone else, and the snowball effect makes the crisis larger by the day. America's ability to save for retirement shouldn't suffer the consequences.
Rather than focusing on systemic retirement policy changes that will take a long time to enact — if they ever become law — those inside the Beltway, industry players and lobbyists should look for small wins that address changes that can make an impact right now.
So what changes will be the most effective?
Treating retirement information like medical records. Americans are entitled to access all of their medical records; the same should apply to retirement. The Department of the Treasury should provide people access to their entire IRS history, including information such as income taxes. The Treasury should also be allowed to grant access to financial advisors who can use that data to provide more actionable, precise guidance on how much to save each year.
Another key action: passing the Retire Act and Sen. Elizabeth Warren's (D-Mass.) Retirement Savings Lost and Found Act.
The Retire Act — Receiving Electronic Statements to Improve Retiree Earnings — which was reintroduced to Congress in December, would allow employers to automatically default participating employees into receiving documents about their retirement plan online. Digitization is a small step, but it would make statements more easily searchable and understood. A change as simple as allowing someone to run a search function through a dense statement to identify the fees they're being charged, for example, will create an outcome-based retirement structure. (Reps. Jared Polis, D-Colo., and Phil Roe, R-Tenn., introduced the bipartisan Retire Act to help Americans plan for retirement.)
Sen. Warren's Retirement Savings Lost and Found Act would also be an obvious win. Individualized retirement accounts, like the 401(k) plan, put the onus on people to be responsible for tracking, managing and consolidating multiple retirement accounts as they move from job to job — resulting in tens of millions of people accidentally abandoning their retirement accounts with previous employers.
Additionally, with more companies auto-enrolling employees into 401(k) plans, many people don't even realize they have a retirement account — leaving many small accounts lost or neglected. This act would create a national "lost and found" for retirement accounts, allowing employees to track down their former employer-sponsored retirement accounts with the click of a button. The concept is so obvious, it's a wonder why it's not already passed.
The Securities and Exchange Commission has proposed its investment-advice rule and will be seeking comments from the public on its 900-page proposal. It's encouraging to see the SEC moving toward a higher standard than currently required. I am hopeful that the proposal will gain additional momentum and not get further diluted by the large institutions with billions of dollars of revenue at stake.
Of course, the ability to live comfortably in retirement isn't exclusively the government's responsibility. People need to take ownership of their savings, and employers can help them do that by offering a 401(k) plan, deferring employees into retirement plans and offering matches to incentivize savings.
But the government can and should make small changes to make the process easier. At the end of the day, our ability to retire comfortably should not hang in the balance because of politicians who are afraid of change.
— By Jon Stein, founder and CEO of Betterment
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