Overcoming Barriers: What’s Working Now, What We Need Next

John Scott, Director, Retirement Savings Project, the Pew Charitable Trusts

Greetings John! let’s jump into the deep end of the pool: what are some of your top focus areas with the retirement savings project at Pew?

(splash!) I’ll share three basic areas we're working in. We started early on by examining the barriers to retirement savings. We then looked at possible policy initiatives. That led us to the state Auto IRAs as being the most promising policy initiative to address barriers that workers face in trying to save for retirement, and that employers face in trying to offer retirement benefits to their employees. So that’s one focus area.

The second one is somewhat related. In the course of that earlier barriers work, we identified a gap for contingent workers. This is a broad term that covers a lot of non-traditional workers, whether that's independent contractors or gig workers or temp workers. To us it’s the group of people that don't have a direct employee-employer relationship, and also don't have the normal payroll system access that a lot of us use to save for retirement. So, we're focusing on those contingent workers and trying to figure out how we can get them into the savings system.

The last area would be looking at once you have retirement savings, how can you preserve those in retirement? We are looking at how retiring workers make decisions about their assets: whether to keep them in an employer plan or roll them over into an IRA, how do they make choices about their investments and do fees matter to them, because we know fees can reduce savings over time. So we're trying to understand that asset growth and preservation dynamic as well.

That's a lot of waterfront – and we think you’re talking about increasing the level of retirement security and confidence for Americans. Why does all that matter and what's your biggest concern?

Well, taking a step back, I've always been taught by my parents that you can judge a country by how it treats the most vulnerable in its population. While elderly poverty is roughly half that of childhood poverty, many older Americans are just a few steps away – a job loss, health shock, unexpected bill -- from slipping into a reduced standard of living, if not outright poverty.  

Most importantly, it’s entirely preventable. A failure to act on retirement security doesn't just reflect on us morally, but it's also a cost that we share as citizens and taxpayers. Those preventable outcomes are my big picture concern. We are currently working on issues of expanding access to retirement savings programs. And we also need to shift our focus toward achieving security. It's not enough just to help people save, it is important to make sure that they have enough in old age.

When you think about access and achieving security, how do we get to that second step once we've gotten to the first step?

Part of it is helping people understand that they're saving over the long haul and that they're saving enough. I think it's also an understanding that this is a collective responsibility; that achieving retirement security isn’t just something that needs to be done by the individual worker, but it also needs to be facilitated in some way by employers and by the government.

From a governmental perspective, that might be by making it easier for employers to make matching contributions into programs like Auto IRAs. It might be expanding the Saver's Credit or providing some other tax credit for savings by lower income participants. Over the past 40 to 50 years we’ve been moving to a situation where retirement security is entirely the burden of the individual worker. And I think we need to move back to some sort of shared understanding. This is a collective responsibility because it's a collective cost.

We know you've worked closely with States to identify potential solutions to retirement savings gap. We’re curious to know -- what are you learning in that process?

Yes, this is actually a fascinating thing. We're in the process of generating a fair amount of research, but I'll give you some high level takeaways from our work and the work of others, including some that will be published soon.

Number one, the big lesson is that while not perfect, these state Auto IRA programs work. They work for employers. We know from our prior research that business owners want to help their employees save for retirement, but many cannot offer their own retirement plan because of either the cost or they don't have the administrative capacity to do so. So the state auto IRAs fill a gap there by providing retirement savings access at almost no cost to the employer until that time when the business owner can afford to start their own 401(k) plan.

Interesting.

We also know that these programs work for workers. Workers are not opting out in droves. Instead, we're seeing 70% participation. We saw a small uptick in withdrawals at the start of the pandemic, but that snapped back. We've seen savings continue through the whole course of this pandemic. Auto IRA accounts are working for employees as a long-term savings vehicle, despite the realities of some financial emergencies.

In our view these programs are also working for financial service providers. We see increasing understanding that Auto IRAs are not a competitive threat but might actually be driving business to mutual fund companies, banks and insurance companies. We hope to show research in near future that indicates there is very robust qualified plan growth in states that have adopted Auto IRA programs.

Why would we see new plan growth in Auto IRA states? There’s a theory here that employers that might have been thinking about adopting a 401(k) are motivated to act once an Auto IRA requirement takes hold. Employers may think, well, I'd like to have a more robust program. So I'm going to go with a provider to set up my own plan.

And then finally, I think that these programs work for state and federal governments. We and others have helped demonstrate the fiscal impact of insufficient retirement savings. People are saving fairly robust amounts considering these are low to moderate income workers. They're building up nest eggs and I think that these will produce considerable fiscal savings for state governments down the road, and a much more financially resilient population that won't be making claims for social assistance in the future.

You mention the fiscal impact of under saving. How important do you think it is for states who are considering legislation to have facts about that fiscal impact?

I think it's incredibly important. One of the great things about these fiscal impact studies is that they include data on the cost of doing nothing. We don't often know that in the policy world or even in the business world, for example -- what's the cost of not opening a factory.

We now understand that in Pennsylvania, for example, if we continue on the present course, Pennsylvania taxpayers will see a $14.8 billion cost over 15 years from insufficient retirement savings. Some policymakers think of retirement savings as a personal responsibility. But these studies show that it just doesn't affect the individual saver, but instead affects all households. We together bear the ultimate cost – or benefit – of our mutual success at achieving better retirement security.

We had some good retirement security work come out of the prior administration and under way by the current one. We’ve had some experimentation by states. And we’re still in a pandemic. So what makes you most hopeful today?

I think what's exciting to me as someone who began working in the retirement field almost three decades ago, retirement policy was always a bipartisan issue. Today, even with the sort of the debate about whether to require employers to be a part of these Auto IRA programs, I see very strong bipartisan -- liberal and conservative -- consensus that retirement security is important. It's a goal worth working toward. We might quibble on the details of how to get there, but it’s important and we’re pursing it.

I think that's really encouraging, especially in this hyperpolarized period.

I'm also very encouraged about the growing awareness that we need to go beyond just expanding access to address income insecurity.

So we're seeing really interesting work on emergency savings, for example, by AARP and others. I already mentioned expanding the Saver's Credit, which is under active consideration. And we see other active talk about reorienting tax policy to make it work for low to moderate income savers. So, without getting into the specifics, I think there's a lot of great conversation and discussion that makes significant improvement seem feasible. We can go beyond opening up retirement plan access, and address helping people achieve some real security.

So John, we have three live Auto IRAs and seven more on the way. Many more states are legislatively active. We have new MEP and PEP capabilities. Tell us where you see all this going!

The positive in all of this is that there's a lot of momentum on different fronts. You know, I have a little bit of skepticism that's widely shared about how effective MEPs and PEPs are going to be, but what's encouraging is that you see a lot of financial providers jumping into the PEP field. And so that's a good indicator that they feel that it fits within their business model and that they can be effective here. We'll have to see if that plays out with new plans being generated and not just existing plan sponsors adopting PEPs. But I think that's encouraging, there's a lot of activity on that policy initiative.  I think that's a great thing.

I also think it's a really great thing when you go to states like Virginia, like North Carolina, Pennsylvania, Kansas, Oklahoma, Wisconsin, that one would not call traditionally liberal states, and there's a lot of interest and activity going on around retirement security and even Auto IRAs.

And it's really just remarkable that when you look at the past ten years, there's been so much progress made. Some folks know that Pew funded the original Brookings Retirement Security Project that helped spawn the papers by Mark Iwry and David John back in 2004. We eventually provided almost $10 million in funding for that work. And that was back in 2004, 2005. And so over 15, 16 years, we've gone from concept to bipartisan legislation in Congress, then shifting to the states and strong growth. Now we're talking about not just big states adopting this, like a Pennsylvania or Virginia, but also consortiums of smaller states perhaps. And we’ve seen people like David John, Mark Iwry, and Angela Antonelli bring some thought leadership into how a consortium might work.

So it’s sort of exciting that probably we wouldn't have imagined 10 and 15 years ago the progress that has been. Admittedly for some people it's a glass half full -- some people think we should have had a national Auto IRA by now. But it's still pretty remarkable in this country that we've made so much progress and people are actually saving and moving to a better financial position.

That's terrific. Final fun question, do you have any silver linings from the pandemic?

Yes, a couple! The most obvious one is when you live near Washington DC and you don't have to commute an hour and 15 minutes each way, every day. That is a silver lining. But in a more positive sense, being able to see my wife and children more frequently is just fantastic. And I can now look out my window and see eastern bluebirds and dark-eyed juncos, and woodpeckers on a regular basis. It's just very nice. Don't get me wrong, I love the Pew offices. They're very pleasant too. But I've actually enjoyed having some time here at home with my family.

Probably not too many juncos in the office.

There is interesting wildlife in DC, but no, not too many juncos in downtown DC.

Thank you John Scott! If you’d like to connect directly with John Scott, you can reach him here. You can follow John’s work and adventures on Twitter at @JohnCScott_DC or on LinkedIn. And you can follow and engage with Pew’s Retirement Savings Project here.

OK, we admit it. We never gave you the oysters. This piece was featured in the March 11, 2021 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, and for a shot of John shucking oysters, check out the newsletter here.