How employers and policymakers can help improve retirement security

Improving retirement plans: The role of employers

The retirement system is a public-private partnership, and the private sector can lead in expanding retirement plan access and helping workers prepare for retirement. Here’s how:

Expanding access leads to increased participation

• Legislation like SECURE 2.0 paved the way to increase retirement plan access and preparation for workers, including new provisions for automatic enrollment, which has proven to boost participation rates, particularly among lower-income workers. 
• Setting adequate default contribution rates helps employees who do not actively manage their plans to better save for retirement
• For plans with automatic increases, the standard structure is a 1% annual increase up to a maximum 20% of salary. While over half of DC plans do not incorporate automatic increases, employers can encourage workers to maintain or increase their prior savings rate upon hire.
• Many workers opt out of participating in their retirement plan when they begin a job but don’t enroll when their financial circumstances improve. Automatically enrolling them into a Qualified Default Investment Alternative (QDIA) every two to three years can provide additional cues for these workers to save.

Strengthening plan design and raising awareness

• Job separation can cause plan leakage. To mitigate the impact, employers can provide options for former workers to stay in their plan and educate workers on the effects of early withdrawals.
• In 2027, millions of lower- to moderate-income Americans will be eligible for the new Saver’s Match, which provides a federal match for qualifying contributions to eligible workers’ retirement accounts.² Employers can bring awareness to this upcoming program to help address the widespread lack of understanding that plagues the Saver’s Credit, which the Saver’s Match will replace.
• Employers should regularly review their plan features to keep up with rapidly changing best practices and innovations, including whether to adopt guaranteed income solutions and employer matching schemes, as part of a dynamic conversation.

Guaranteed income for better outcomes

While DC plans help Americans save for retirement, they often fall short in converting savings into reliable income. Many retirees rely on rules of thumb like the 4% rule or ad hoc withdrawals, which can lead to overspending³—or more commonly, underspending due to fear of outliving savings. In fact, 66% of workplace savers worry about running out of money in retirement.⁴

Annuities can offer a solution by turning savings into lifetime income, yet adoption remains low. To address this, the private sector is innovating, with solutions such as BlackRock’s LifePath Paycheck®, to integrate guaranteed income products into DC plans.

Research from the report shows that allocating one-third of a portfolio to deferred annuities can boost retirement spending by 29% and reduce downside risk by 33%.⁵ In part, this is because the additional security provided by guaranteed income allows for a more aggressive asset allocation in the rest of the portfolio.⁶

Additionally, research shows how guaranteed income solutions tap into human psychology to promote more confident spending in retirement. Nearly 60% of a nationally representative sample of adults “would feel more comfortable spending on nonessential activities such as going on vacation or eating dinner with friends in retirement if they [annually] received an additional $10,000 of income for life than if they had an additional $140,000 of retirement savings”—even though $140,000 represents the average cost of $10,000 of annuitized income.⁷

Building a stronger retirement together

Strong commitment across the ecosystem is essential to drive real change in expanding access to retirement tools. More than 11,000 Americans are turning 65 each day,⁸ placing remarkable strain on the economy and resources. The call to action is clear: It’s all of our work, and the time is now. Through a mixture of private innovations and public policy, the future of retirement can allow more Americans to experience financial well-being.