No, I Don’t Hate 401(k)s — I Want Pensions For All, Not Just A Few

Sometimes, it’s necessary to correct the record. The other day, a click-baity, highly misleading headline blared: “Teresa Ghilarducci Confirms Proposal to Create Federal 401(k) Would Remove Employers from Retirement Saving System.” Sounds scary, but it’s totally untrue.

Let’s get something clear: I don’t hate or want to abolish 401(k) plans — I am fortunate to have one myself. But let’s remember, Ted Benna, the so-called ‘father’ of the 401(k), said he created a monster.

A fair observer would point out that 401(k)s work for only a fortunate minority of workers, for market and government policy reasons. The 401(k) tax breaks are top-heavy, meaning the top 20% of earners get over 60% of the benefits. Workers fortunate enough to have life-long steady jobs, generous and large employers, and stable lives (without messy things like layoffs and divorces) get the the most out of the 401(k) system.

Yesterday, I gently asked the American Retirement Association (ARA) to correct their aforementioned article claiming, falsely, that I want to end employer-sponsored retirement plans. They refused to either correct the record or offer readers my side of the story — perhaps because the ARA is a lobbying group that needs an enemy to agitate their members (who are good people in the retirement advice and broker industry) to fund their operation in Washington.

The ARA made a significant error quoting me in their February 28 article which misleads readers. Contrary to the ARA’s article, the Retirement Savings for Americans Act (RSAA ) would not “remove employers from the retirement saving system.” This bipartisan, bi-cameral legislation supplements employer-based plans for the millions of Americans who do not have retirement account coverage; the RSAA doesn’t supplant or “remove” anything, it complements existing systems.

The ARA’s own members could in fact benefit from the retirement reform I support. Think about it: If the RSAA passes, over 80 million people without wealth would be connected to the wealth-building system — which comes with a need for advice, from, wait for it, ARA members.

A Retirement Crisis For Most Americans

Let’s be honest, we all know the limited reach of the 401(k) — most humans can’t arrange to save the right amount, invest the right way, avoid leakage, and distribute the money to last a lifetime.

The careful analyst John Wasik says, “I’m not big fanboy when it comes to 401(k)s. They are not a guaranteed pension plan. Employers don’t have to fund them and may charge high fees. And you don’t have to contribute. Half of employers — most of them small companies — don’t even offer one.”

Relying on the 401(k) model to fix America’s retirement and elder poverty crises has been disastrous.

Over a 20-year period, the share of the bottom 50% having any retirement account didn’t budge: 46% in 1992 and 47% in 2016. Even the middle class suffered, with the share of the next 40% that have retirement savings plunging from 85% in 1992 to a low of 71% in 2016. Only the top 10% have seen their real wealth grow in the last 30 years. The 2023 report by the Government Accountability Office also documented the inequality. Large and persistent gaps in retirement plan participation are driven by unequal market access and poorly designed incentives.

As I testified recently before the U.S. Senate, because of insufficient retirement wealth, the U.S. elder poverty rate – measured by international standards — is the highest among rich nations at 23%. In contrast, Canada’s elder poverty rate is 12%, while the poverty risk for Dutch elders is in low single digits at just 3% (the Netherlands is known for its top-ranking pension system).


The ARA misleadingly claims that the “data contradicts Ghilarducci’s point” because the Federal Reserve Survey of Consumer Finances found that Baby Boomers, on average, are the wealthiest generation in the nation’s history — but in fact, the data makes my point. Averages don’t tell the story. Distribution does. If Elon Musk walks into a group of 50-year-olds, the group is suddenly among the richest fifty somethings ever, on average. But the actual real wealth for each person in that group didn’t change, and their median wealth would be far lower.

Measuring by the median, that same Federal Reserve data shows the typical person in the bottom 50% has nothing in their retirement account; in the middle, the next 40% have about $154,000 in their accounts; and only the top 10% have enough — $800,000 — to actually retire and maintain their standard of living.

In that bottom half, very few people have a 401(k) or any kind of pension. A data map of the United States, produced by the Economic Innovation Group, shows that distressingly few low-income workers are covered by retirement accounts. Twenty-four percent of low-paid workers in California, and 23% in Texas, both rich and growing states — leaving Uber drives, home health care aides, janitors, and other gig workers out in the cold.


At that same Senate hearing where I testified, the Heritage Foundation chimed in, citing data using misleading averages to claim that the real pre-tax income of workers ages 65 and older increased by 30 percent after inflation since 1988. There must be a few Elon Musks in that “average” data, because medians tell the real story: Wealthy people can bring up the average and make a group of poor people look middle-class, distorting reality.

Solutions To The Retirement Crisis

Rather than scrapping anyone’s 401(k), the RSAA legislation would create bold, critical progress for the millions of seniors who have no wealth to build on. The current system of Do-It-Yourself is not working.

The myriad of baby steps toward getting people into plans — State Auto-IRAs and provisions in SECURE 2.0 legislation – don’t help the estimated 80 million workers, half the workforce at any point in time, who don’t have any way to save for retirement.

One thing that ARA, NAPA, and I agree on: calling for the 401(k) system to give up the generous tax advantages is not politically possible at this time. Though the researchers at the Center for Retirement Research at Boston College are right to point out the lopsided effect and ineffective use of the over $200B (estimates vary by method) in tax breaks for retirement accounts. Fixing that should NOT be that hard, as Forbes contributor economist Christian Weller sums up.

Fortunately, we CAN extend wealth-building opportunities to all American workers with bold changes to our retirement system – and one bipartisan proposal to do this already exists. A federal retirement plan similar to the Thrift Savings Plan would be a bold solution. In addition to the match, full- and part-time workers would be automatically enrolled at 3%, and the accounts would be portable and follow employees when changing jobs throughout their careers.


The Retirement Savings for Americans Act, sponsored by Senators John Hickenlooper and Thom Tillis, and Representatives Terri Sewell and Lloyd Smucker, would expand retirement plans to private-sector workers who don’t have any coverage. Modeled after the successful federal Thrift Savings Plan, the RSAA features automatic enrollment, portability, good investment options, sensible deaccumulation, and a 5 percent government match for eligible savers. The match for low-income savers mitigates the top-heaviness of current retirement tax breaks, where the top 20% of taxpayers currently receive over 60% of the $267 billion spent. The RSAA wouldn’t touch or alter any existing 401(k) or other retirement plan.

Retirement accounts are the most important wealth-building institution in America. And most workers are left behind because of the structure of the system. I invite the membership of the ARA — actuaries and advisors – to advocate for workers left behind. All Americans deserve retirement wealth that is professionally managed. This program is targeted to a large and uncovered group of workers.

Endorsed by experts across the political spectrum — from the AARP to Charles Schwab — the RSAA has bipartisan, bicameral sponsorship, so the chance of passage is real. This is a unique opportunity for us to significantly improve and vastly expand America’s woefully inadequate retirement coverage.

Young Workers And Their Future

Last week, a 25-year-0ld Texas NPR host of an hour-long call-in radio show asked me why retirement in the U.S. is becoming a luxury. Likewise, my students frequently ask me why so many old people are poor and still have to work in America, when we can clearly afford pensions for all.

I share their concerns and their smart questions. Why can’t we all get access to retirement wealth-building systems in America? The answer is, we can. It’s just going to take a little political will, and for those who care about retirement for all Americans to work together.

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