With 10,000 baby boomers turning 65 each day, concerns are mounting about how to fix a system that excludes so many. There are plenty of ideas but little consensus among government officials, business executives, economists and others.
Small companies are among the most resistant. Many aren’t convinced it’s their responsibility to help employees save for retirement. And owners often balk at the costs and complications of offering a 401(k), even without a matching contribution. Only 45 percent of companies with fewer than 100 employees had 401(k)s in March, according to the Bureau Labor of Statistics.
Joel Freimuth, former chief executive officer of Chicago- based Blue Pearl Consulting, has advised about 500 small manufacturing and medical technology businesses. Only about 10 percent have a 401(k) plan. The vast majority fail to see that such a benefit helps retain talent and reduces recruitment and training costs. Freimuth’s own company offered a 401(k) plan with matching funds to its 25 employees before he sold it to Immediate Solutions, a medical technology startup in New Jersey.
“Most companies I’ve worked with have said doing this isn’t worth the trouble or the administrative costs and potentially higher liability insurance,” he says.
Plenty of Options
Financial-services industry executives say employees still have plenty of options.
“They can walk into any bank, broker or credit union -- or even go online, and open up an IRA funded with payday deductions,” said Marin Gibson, managing director of the Securities Industry and Financial Markets Association in New York.
Yet even the most disciplined savers can come up short without the boost of a company match. Employees can stash as much as $5,500 annually in an IRA and an additional $1,000 if they’re 50 or older. A worker who consistently saves $2,500 between the ages of 25 and 65 and earns 4 percent annually would accumulate about $247,000 upon retirement, according to EBRI. Those savings will provide only about $10,000 a year, assuming seniors withdraw 4 percent annually, the amount financial planners recommend to ensure the money doesn’t run out.
To address the retirement-savings crisis, President Barack Obama last year announced a plan to create “My Retirement Accounts,” or MyRA’s, that would allow those without 401(k)s to direct part of their pay into accounts that invest in government bonds. Progress on that proposal has been slow.
Three states -- California, Illinois and Oregon -- have approved laws to create IRAs that would automatically deduct 3 percent from employee paychecks, although none is expected to begin withdrawing money until 2017. Similar laws have been introduced in about 20 other states with Democratic-controlled legislatures.