Progressing Incrementally

Apr 11, 2024

The U.S. retirement system has undergone dramatic changes over the last 50 years.

Back before 401(k) plans, some employers offered pension plans and workers who stayed with their employer for a decade or more would receive some pension income in retirement. Not everyone had a pension nor were covered by a pension plan.

By the early ‘80s, the 401(k) plan started to catch on with employers and their workers. These savings plans didn’t require a worker to stick with the same employer for a decade. Instead, workers could accumulate savings that could move from job to job or get parked in an IRA.

Over the years, Congress has made numerous changes to the rules that have helped to expand worker access and boost overall savings including faster vesting rules for employer matches, permitting auto-enrollment to make savings the default activity, and using tax credits to help low-income workers save and small businesses establish plans.

The list goes on. Over the last five years alone, Congress has improved the rules to address savings for long-serving part-time employees, required automatic enrollment for all new plans, and instituted a fully refundable saver’s match for low- and moderate-income savers. 

Congress has also focused on retirement income. Concerns have been raised that savers in 401(k) plans won’t have protected income in retirement. Few 401(k) plans offer annuities to plan participants at retirement. Back in the ‘90s, the U.S. Department of Labor issued stringent guidance for employers’ use of annuities focused on required pension payments that led many 401(k) plan sponsors to eliminate annuity options for plan participants.

In 2019, Congress addressed this and provided employers a safe harbor to add an annuity option for participants seeking lifetime income guarantees in retirement. Congress also added rules to encourage longevity annuities that provide payments starting late in retirement.

It is very likely that Congress is not done. Rep. Richie Neal (D-MA) has reintroduced a bill to get more businesses to offer workplace savings plans. Saving before getting paid works. Americans know this. That is why those that have access are more likely to save. Coupled with retirement income solutions, these savings plans go a long way to supplementing Social Security.

Jim Szostek

Jim Szostek is Vice President & Deputy, Retirement Security at the American Council of Life Insurers (ACLI). He helps guide ACLI policy on legislation and regulations affecting the U.S. retirement system. Prior to joining ACLI in 2008, he held positions at CIGNA and The Hartford.