A trifecta of solutions to close the retirement-savings gap

Several factors, including the gender pay gap, education and economic gaps in communities of color and lack of plan-to-plan retirement savings portability for job-changers, have led to a serious retirement savings deficit in the U.S. 

Right now, three transformational programs and tools have been introduced which, when unleashed simultaneously, can finally fill the gap in retirement savings for minorities, women and low-income workers. 

Those three retirement-saving demographics, because they are the most likely to have smaller 401(k) balances, have historically been most at risk of prematurely cashing out their retirement savings accounts. The same is true when it comes to forgetting about their accounts after switching employers, as well as missing other opportunities to accumulate and consolidate wealth during their careers. 

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Fortunately, tech innovation and public policy have aligned to create three solutions that collectively have the potential to incentivize retirement-saving opportunities for small-balance plan participants, thus significantly shrinking the existing wealth gap. 

Trump Accounts
As part of a pilot program, every child born in the U.S. from 2025 to 2028 will receive $1,000 from the U.S. Treasury. This sum will be deposited into their own tax-efficient retirement savings account, known as "Trump Accounts." These vehicles will be available to all U.S. newborns, regardless of their parents' financial status and income, and will invest exclusively in low-cost index funds. Trump Account restrictions are designed to prevent premature withdrawals, except for vital life events.

According to our research at Retirement Clearinghouse, based on projected live births in the U.S. over that 2025-2028 period, four years of Treasury deposits into Trump Accounts could increase to $799.5 billion in incremental retirement savings if recipients hold their Trump Accounts until they retire.   

Saver's Match
The Saver's Match Program, as part of SECURE 2.0 Act of 2022 provisions, will replace the Saver's Credit for tax years beginning in 2027. Under the Saver's Match, taxpayers who contribute to an IRA or an employee-sponsored retirement plan and meet income qualifications, will be entitled to a 50% federal matching contribution as much as $1,000 (for those who are single or filing individually) or $2,000 (for those who are married, or filing jointly). These matching contributions will be deposited directly into the respective plans or IRAs. 

Morningstar research estimates that the Saver's Match could bring Americans an additional $2.03 trillion in long-term incremental retirement savings. In addition, according to our Saver's Match Simulation, up to 27.1 million Americans could be eligible every year for the Saver's Match, with an average matching contribution of $634 going to each one of them.  

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Auto portability
Auto portability is another provision in the SECURE 2.0 Act of 2022. Retirement Clearinghouse developed an auto portability solution that can automate the movement of a plan participant's 401(k) account (with $7,000 or less) from their former employer's plan into an active account in their current employer's plan. If auto portability has been adopted by both the participant's previous and present employers' plans, then the participant can begin the process of consolidating their 401(k) savings in their new employer's plan when they actually switch jobs.

According to the Employee Benefit Research Institute, the gold-star standard in bipartisan retirement industry research, $92 billion in assets "leaks" from the American retirement system on an annual basis. The most common driver of this phenomenon is the premature cashing out of 401(k) accounts — and most of these cash-outs occur within a year or two after participants change jobs. 

Our most recent Auto Portability Simulation shows that if plan recordkeepers and sponsors throughout the U.S. were to adopt auto portability over a 40-year period, then 175.6 million Americans would be able to enjoy an additional $1.6 trillion in net incremental retirement savings. Embedded in that sum would be $744 billion for 98 million minority participants in employer-sponsored retirement plans, including an extra $216 billion for 30 million Black Americans. 

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In a historical show of unity, the largest U.S. retirement plan recordkeepers joined forces to create an industry utility, the Portability Services Network, LLC (PSN), which became live in November 2023 to simplify the adoption and deployment of PSN Auto Portability. Recordkeepers that are part of the Portability Services Network provide services to over 185,000 employer-sponsored plans in which about 82 million Americans participate. 

Taken cumulatively, the $1.6 trillion in extra retirement income from PSN Auto Portability, plus the projected $2.03 trillion in additional retirement savings from Saver's Match contributions, along with the estimated $799.5 billion in retirement income from Trump Accounts, can finally resolve our country's wealth gap over time. 

The retirement services industry and individual plan sponsors shouldn't let this historic opportunity slip away.