Society and the way people work has undergone a significant shift over the past decade. Advances in technology and increased economic opportunity are contributors to this shift. As the economy continues to change, the way we approach retirement savings must change as well. Otherwise, too many Americans will be left behind.
Saving for retirement isn’t an easy thing to do. And today retirement savings often ranks low on many Americans’ priority lists.
Complicating things further are additional factors, such as the rise in popularity of employment in the on-demand economy and increased job changes.
Over the past decade, technology has advanced an entirely new way for Americans to work. Internet-based businesses, such as rideshare companies Uber and Lyft, childcare company Care.com and new start-ups emerging seemingly every day, have turned the on-demand economy into a major source of employment for hundreds of thousands of Americans.
However, the people who participate in internet-based businesses work as “contractors” rather than salaried employees. While these individuals may choose to work in the on-demand economy for the flexibility and an independent work life, one downside is that they don’t currently have the same ability to participate in today’s employer-sponsored retirement savings plans, which were designed for the traditional business model of companies staffed by full-time employees.
American workers also are changing jobs more often than ever before, with the average person changing jobs 10 to 15 times during his or her career, according to recent data from the Bureau of Labor Statistics.
This is particularly true for younger workers. The 2018 Deloitte Millennial Survey found that 43 percent of millennial workers plan to leave their current jobs within two years; a meager 28 percent said they plan to stay beyond five years.
A Gallup survey found that millennials change jobs more than any other generation, with six in 10 respondents open to new job opportunities. This amount of employment turnover makes it increasingly difficult to figure out how to maintain and build upon existing retirement savings accounts. Further, it highlights the need to ensure that workers can easily take their retirement savings from one job to the next.
Committing to saving for future needs is difficult enough, but it is also clear that many Americans don’t have access to a savings plan.
It’s also hard to save enough. For those who are able to save, it can be daunting to make sure that sufficient funds are set aside to live in retirement.
These are just a few of the problems my colleagues and I have been working to solve. Fortunately, there are solutions at hand.
Earlier this year, Sen. Ron Wyden, D-Ore., and I introduced the bipartisan Retirement Enhancement and Savings Act (RESA). Among its provisions, RESA would improve an existing type of retirement savings plan called Multiple-Employer Plans (MEPs).
For example, currently, internet-based companies cannot provide retirement plans to their contractors. RESA would open MEPs to allow businesses like Uber, Lyft and Care.com to provide plans similar to 401(k)s to contractors and increase retirement savings opportunities to hundreds of thousands of people who may otherwise not have had access.
RESA also would create a new fiduciary “safe harbor” for retirement plan sponsors. This would allow employees to invest in lifetime-income arrangements like annuities, helping them to manage their retirement savings to ensure they have adequate funds for their retirement years.
In addition, the legislation would help employees add to their retirement savings each year through automatic increases to 401(k) contributions and help workers plan for retirement by requiring employers to provide an estimate of how much the employee’s account would provide during retirement if they invested the balance in an annuity.
Further, another application of open MEPs would allow employers to join together to sponsor a single retirement plan for their workers. That is particularly helpful for small businesses and farms that often want to provide retirement plans but can’t due to overwhelming administrative burdens.
The House of Representatives passed legislation earlier this year that includes the major reforms made in RESA as well as some additional policies that will expand and secure retirement savings. The bill is now in the Senate and under active consideration.
The workplace retirement system is the primary way American workers save for retirement. As our economy changes, retirement savings must change.
I urge my Senate colleagues to take immediate action on this modernization bill that improves our current retirement system while creating new savings opportunities for American workers.
Chuck Grassley is a Republican U.S. senator from Iowa and chairman of the Senate Finance Committee.