For all the alarming research, policymakers and other experts are nonetheless hopeful that plan design and regulatory and tax changes will help alleviate the problem.
David Stinnett, head of strategic retirement consulting at Vanguard, acknowledges that while the firm's research is "troubling" and that much more work needs to be done, there are "prescriptions" for progress, including modern plan design that leverage automatic enrollment and automatic escalation as Sonoco has done.
"While auto-enrollment and auto-increase features help everybody, the data is very clear that the compensation cohorts that benefit the most are the lower-income folks," he said.
Stinnett pointed to research in Vanguard's latest How America Saves report showing that workers in the three lowest income tiers had the biggest jump in retirement plan participation when plans went from voluntary to automatic enrollment. Workers making less than $15,000 a year, for example, had participation rates of 28% under voluntary-enrollment plans. Those in auto-enrollment plans, in contrast, has participation rates of 80%.
Stinnett also noted that smart plan design features are already making a difference for the nation's younger workers who, in some cases, are already better prepared for retirement than their older peers. Vanguard, for example, estimated that millennials with a median income of $42,000 will be able to generate retirement income equal to 58% of their pre-retirement earnings, 8 percentage points more than the 50% of pre-retirement earnings estimated for baby boomers with the same median income.
Millennials at higher income levels beat baby boomers in retirement readiness by even larger margins, but at the lowest 25th income percentile — workers with a median income of $22,000 – both millennials and baby boomers faced the same 32-percentage point savings shortfall.
Stinnett didn't have an immediate answer for that, positing that millennials' lack of progress at that level of income may be due to possibly not having access to a workplace retirement plan.
"That's a challenge for future rounds of retirement policy," Stinnett said, referring to workers without access to retirement plans.
The GAO report also cited auto features as a strategy to boost retirement plan participation and balances among low-income workers. It found that while auto enrollment and auto escalation help increase participation and balances for all workers, the features help low-income workers the most. For example, for workers with access to workplace plans, the potential increase in participation among low-income workers from auto enrollment was 34%, whereas for middle-income and high-income workers the potential increases were only 15% and 4%, respectively.
"Automatic enrollment may especially increase participation if paired with a strategy to provide all workers access to a workplace retirement plan," said Kris Nguyen, director of the GAO's education, workforce and income security team, in an email.
Policymakers also applauded several provisions in the SECURE 2.0 legislation, including more generous tax credits to entice employers to offer workplace plans and the saver's match, which will essentially give low-income earners up to a 50 cent match on every dollar they put into their retirement accounts, up to $2,000, for a maximum match of $1,000. The saver's match, which begins in 2027, will be deposited directly into savers' retirement accounts.
NIRS lauded the saver's match, calling it a departure from retirement tax policy that it says mostly favors high-income earners.
The match could provide "a nice boost" to the retirement account balances of lower-income individuals, NIRS said in its report.