JOHNSON: A commonsense solution to America's retirement savings crisis
America faces a serious retirement savings crisis. Most Americans have not built a sufficient nest egg to support their current standard of living in retirement.
The facts are staggering. There is a $6.6 trillion retirement savings gap between current retirement savings and the amount Americans should have saved. Additionally, the average retirement savings balance for households nearing retirement is only $12,000.
There are many factors driving this crisis. Employer-sponsored retirement plans represent an important savings vehicle, but nearly half of American workers lack access to workplace retirement benefits. Over the past 30 years, there has been a steady drop in the percentage of workers covered by defined benefit pensions that provide lifetime annuity benefits. Increasingly, American workers are participating in defined contribution plans, like 401(k)s. Although these plans provide increased portability, they shift the investment risk and most of the contribution responsibility to workers. They are also vulnerable to economic conditions, as many Americans experienced when their account balances took a precipitous fall during the Great Recession from which our country is still recovering.
Unless action is taken, most American workers will continue relying on Social Security as their main source of retirement income. Social Security represents a critical pillar of American retirement security, but it only replaces about 40 percent of the average retired worker's income and was never meant to be the principal source of income for retirees. Today, the majority of retirees rely on Social Security for at least half their income, and one-third of retirees depend on Social Security for 90 percent or more of their income. While I support efforts to protect and strengthen Social Security, we also must find ways to help workers save for their futures, as these benefits alone are often insufficient for a comfortable retirement.
This month, I became a proud cosponsor of the USA Retirement Funds Act. This legislation would give the 75 million workers without access to a workplace retirement plan the chance to earn pension benefits. Employers who do not offer a retirement plan would be required to automatically enroll employees in a new type of privately-run retirement plan. Employers would not be required to match contributions, and workers could increase, decrease or stop their contributions at any time. USA Retirement Funds would offer the advantages of traditional pension plans, including monthly lifetime benefits, risk sharing and professional management, but they would also provide the portability and reduced employer liability that make 401(k) plans an attractive retirement savings vehicle. This legislation would greatly improve retirement security for the millions of Americans without a workplace retirement plan.
The time for action is now. Despite the partisanship in Washington, I am hopeful members of both parties will set aside their differences and work together to give Americans the tools they need to save for retirement. The USA Retirement Funds Act would address the growing retirement savings crisis by encouraging savings and creating investment opportunities for American workers. This is a commonsense solution that will help ensure that all Americans can retire with dignity and financial independence.