By Craig Erwin, Ph.D.

The 401(k) Is Poised To Get A Big Upgrade
Although legislation creating 401(k) plans (workplace retirement savings plans) was passed in 1978, 401(k) plans have never lived up to expectations because so many eligible people either don’t use or underuse them. Since only 15% of Americans had a pension in 2021, you would expect more people to rely on 401(k) plans, but they are still used by a minority of those eligible. Perhaps that is why only 36% of working adults believe their retirement savings are on track. With pensions scarce, most retirees rely on Social Security benefits. But Social Security benefits have failed to keep up with inflation for decades, making them difficult to live on for the many retirees that depend heavily on them. Plus, the Social Security trust fund is expected to be totally empty by 2030. And by 2030 21% of the population will be 65 or over.
Some help may be on the way, if it’s not too little too late. Although it may not address the Social Security crisis, Congress is considering legislation that would make substantive changes to 401(k) plans. Enrollment in 401(k) plans would become automatic. Why? Because far too many Americans (especially young ones) fail to use 401(k) plans, so many reach retirement age with far too little wealth to retire. Although currently 401(k) plans are available to 68% of private industry workers, only 50% use them. And even though 1 in 6 employers require new hires to enroll in 401(k) plans, for the employers that don’t, only 28% of employees enroll. If the legislation is passed, requiring 100% of workers to enroll in 401(k) plans, it would result in tens of millions more Americans enrolling in 401(k) plans.
One group expected to benefit from the overhaul is student loan debt holders. They tend to wait until they pay off their debt before they start saving for retirement. This limits their ability to accumulate enough wealth to retire because the earlier one starts saving and investing, the more wealth she is likely to accumulate. If automatically enrolled in 401(k) plans, many student debt holders would start saving earlier.
Currently, only full-time workers may have 401(k) plans, a glaring weakness which puts part-time workers at a great disadvantage in saving for retirement. Thankfully, the Congressional proposal would require employers to provide 401(k) plans to part-time employees, even if they work as few as 10 hours a week. The proposal would also create an online tool used to help locate lost retirement funds.
Although counting on Congress to do what’s right is often an exercise in futility, the proposal discussed above would likely be good for all of us. It gives us more retirement savings options and pushes us to save, which is what we all need to do.
Are you saving enough for retirement? Do you need a nudge to motivate you to save more? Do you think all American workers should be able to save for retirement at work?
For more information on 401(k)s, retirement, and investing, click on the following links:
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