Ten years ago [Aug. 17], President George W. Bush signed into law the Pension Protection Act of 2006 (PPA) – the last major piece of retirement security legislation enacted in the United States. That reform was a major step forward and has helped millions of Americans save for their own retirement.
But a decade later, it is clear that more work remains to be done. Only about half of private-sector employees are contributing to workplace retirement savings plans. Even those who do manage to build up savings lack options to make those funds last for the rest of their lives. It is crucial that policymakers revisit how to improve Americans’ retirement security, otherwise they risk inviting the retirement “crisis” that some argue is already upon us.
The PPA passed with bipartisan support and impacted almost every aspect of retirement savings. It revamped funding rules for defined benefit pensions; increased contribution limits for defined contribution retirement plans, such as 401(k) plans; and established a permanent “Saver’s Credit” that encouraged lower-earning workers to save for retirement.
Importantly, the PPA also recognized that defined contribution plans were rapidly becoming the primary savings vehicle for most savers. The law contained provisions to make these plans better. For example, it encouraged automatic enrollment, whereby all workers contribute to the retirement plan unless they proactively choose not to participate. More than half of large employers have now adopted this feature, which has dramatically increased worker participation.
But despite these improvements to retirement security, about one-third of working Americans still do not have access to a plan through their employer. Even among those who do have access, too many do not contribute. The access and participation gaps are stark among workers for smaller businesses – while 90 percent of private-sector employers with 500 or more workers offer a plan, only half of employers with less than 100 workers do so. Smaller employers that do offer a plan are less likely to use automatic enrollment than larger employers, and their plans often have higher fees, which cut into investment returns.
The status quo is unacceptable, and that is why our commission at the Bipartisan Policy Center tackled these challenges. Americans should have the opportunity to easily save for retirement straight from their paychecks, but smaller employers lack the time and expertise to navigate the complex requirements of plan sponsorship and do not operate on a scale that achieves the lowest plan costs. These businesses need an easier way to offer their workers well-designed retirement savings plans.