New Orleans       In the United States, there’s been a retirement crisis in front of our noses for a long time.  The country depends on immigrant, often undocumented workers for farm labor, child care, healthcare, and throughout the service and manufacturing economy.  Though they pay taxes and underpin the Social Security system for other elderly, none of them will qualify, but they will get old and sick, just like the rest.  California has led the way in providing healthcare coverage regardless of citizenship status, but not many states have followed yet, even though they benefit from the labor and will share in the crisis.

Same for retirement benefits because any Social Security credits are not coming to them.  Where this problem also multiples exponentially will be when it hits the millions of gig workers who, thanks to our tech billionaire overlords are still, in most states, not being counted as employees so when they age-out, will have huge gaps in payments.

None of this is news, even if it’s all about the short term cheap, daily exploitation of workers, and the long-term disaster.  For all the fake handwringing about whether Social Security will run out of money in coming decades, it’s also clear that these huge 401(k) plans are absolutely not the answer.

A recent report in the Times provided some gut checks, as well as a survey of some recommendations for reform for 401(k) programs that are worth taking seriously.  First, we have to reckon with a fundamental “given” when it comes to these plans:  they mostly benefit higher income individuals and give them distorted tax benefits.  Only about half of Americans are covered by any type of retirement plan.  Period.  This also means that for the half without coverage, Social Security will be all she wrote.  The trials of aging wait for everyone, but these plans are not equitable, and it shows in the numbers:

The median retirement account holdings for workers 55 to 64 years old was $185,000 in 2022, according to the Federal Reserve, and the amounts saved by low-income workers have actually fallen in recent years. There are also persistent disparities in savings by race and ethnicity, with Black households holding only 14 percent as much as white households, and Hispanic households just 20 percent compared with white households.

So, what do the experts say should be done about it?  It’s all across the map, but here goes:

• Expand 401(k) coverage: “Seventeen states …[created] “auto-I.R.A.” programs designed to automatically enroll employees lacking a workplace savings plan. Contributions are sent via a paycheck deduction to a state-sponsored plan that manages the investments, but there is no matching employer contribution.
• Make 401(k)s more like pensions: Making enrolment automatic is key here.  One plus:  “A redesigned saver’s match …provides for a government matching contribution up to $1,000 annually for lower-income earners.”
• Ensure better investment advice: How advisers are not under ERISA is a scandal, and the notion that most us have a clue about how to invest a 401(k) is also the case.
• Rework the system to make it more equitable: Now, we’re talking.  This is one of my favorites.  Treasury estimates they lose almost $200 billion in tax revenue from the high rollers using 401(k)s as a benefit now, not later.
• Expand Social Security with new revenue: Right on!  Transfer that $200 billion over for one thing, but politicians need to stop listening to their donors and start looking at their constituents who are getting longer in the tooth and vote like crazy, and put the money where it will help everyone when it’s needed.

The crisis is here now and will only get worse.  I’m unconvinced that 401(k) plans will ever be the real answer, but a comprehensive Social Security system that tries to protect everyone as they age past the ability to work would be as total winner.