Retirement Experts Identify Possible Fixes to the Retirement Savings Gap

Opt-out policies are the best way to increase retirement plan enrollment, according to three retirement experts who spoke at the Investment Adviser Association’s 2022 Policy and Leadership Forum in Washington, D.C. However, they acknowledged that more financial education is needed for both sponsors and participants.

Michael Davis, head of defined contribution specialists at T. Rowe Price, emphasized the importance of automatic enrollment in plans and automatic escalation in employee contributions over time.

He explained that employers with auto-enrollment have an enrollment rate of 82%, whereas those without it have an enrollment rate of 44%, according to research conducted by T. Rowe Price. He added that 94% of employees who are auto-enrolled at 3% never escalate that contribution with that employer—emphasizing the value of auto-escalation.

According to Davis, there is an approximately $4 trillion gap between the savings required for everyone to have a secure retirement and what Americans are actually saving.

Lisa Massena, the principal of Massena Associates cited Australia’s auto-enrollment policy, known as the Australian Superannuation Guarantee Fund, as a positive role model for the U.S. The program requires employers to contribute 10.5% of an employee’s wages to a retirement plan, which will increase by 0.5 percentage points annually through 2025, when it will be 12%. Employees have the option to make their own contributions.

Anne Lester, the former head of retirement solutions at J.P. Morgan Asset Management, highlighted the Pension Protection Act, which reduced legal obstacles to employee auto-enrollment and auto-escalation.

The panel also explained that employers interested in starting a sponsored plan can reach out to the Employee Benefits Security Administration for assistance. EBSA provides guidance to employers on how to sponsor a retirement plan if they aren’t sure how to get started.

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