A fringe HR / benefit management topic that I pay close attention to is retirement savings. Even for today’s veteran workforce, retirement savings plans are an important but underutilized employer benefit. It is no wonder that when I read a recent article on this topic posted on cnn.com that I sat there staring at my computer screen and shaking my head(http://www.cnn.com/2007/LIVING/worklife/12/12/law.teens.retirement.ap/index.html). The jist of the article was that by the time today’s teenage workers are ready to retire, well over a third will have saved ZERO, NADA, ZILCH to augment their less than adequate government social security income.Let me emphasize this point by repeating it. The report found that more than one out of every three American workers born in 1990 will have zero dollars in a 401(k) or other similar style retirement savings plan!Thinking about it a bit further I said to myself, “Well, this is no reason for alarm. Who would expect a teenage kid to be squirreling away some of their minimum wage earnings for retirement? They have 45 years to save.” But then I read on and better understood the alarming point of the article. The data supporting this prediction comes from the U.S. Government Accountability Office and is based on current and historical trends of workforce retirement savings rates and employer savings plan offerings.
The GAO report estimated 36.8 percent of today’s 17-year-olds will have no money in a 401(k) or similar plan when they retire. The numbers will be worse for low-income workers: 63 percent of them will have zero dollars in a 401(k)-type account when it comes time for them to retire.
When we factor in the uncertain solvency of the U.S. government Social Security program 50 years in the future, this data is a warning that millions of today’s American teenagers will face rough going when it comes time to retire.And because these financially unprepared retirees will likely need to apply for various government assistance programs to make ends meet, the drain on the government social services budget could be staggering. Therefore this issue is drawing attention in Washington as legislators grapple with how to encourage employers to offer, and young employees to participate in retirement savings programs.Even today, when looking across the entire workforce demographic in America, the most recent data finds that only 36 percent of workers in 2004 participated in 401(k)’s and similar accounts when offered.Lawmakers are supporting mandatory enrollment in retirement savings programs for all new employees. I support and share this opinion.Because most workers haven’t a clue in how to best invest their money, they are hesitant to join retirement savings plans because there are too many confusing choices and they don’t want to make a mistake. Therefore, along with automatic enrollment, have default investment choices already defined. The employee can always change their investment mix down the road, but at least they have something to get started.In summary the report also presented the following data:1. Social Security provides about 40 percent of preretirement income for current retirees but that’s projected to fall by the time today’s young adults retire.2. GAO found that automatically enrolling workers in 401(k)s and similar plans would cut the number of those without money in those plans to 17.7 percent.3. Automatic enrollment would halve the number of low income workers with zero retirement dollars from 63 percent to 30 percent.4. The number of pension plans being offered is dropping fast. In 1980, pension-style plans had 38 million participants and 401(k)-style plans had 20 million participants.5. By 1994, 401(k)s and other defined-contribution plans included 64.6 million participants, while pension plan and other defined benefit plans included only 41.7 million participants.6. In 2004, only 62 percent of active workers were offered any kind of retirement plan — pensions or 401(k) style — by their employer.