Last week, we looked at 401(k) catch-up opportunities for workers approaching retirement. We also noted that these benefits apply primarily to people with sufficient income to take full advantage. Disparities across income levels are reinforced by the current system, including the fact that 1 in 3 Americans does not even have access to a company retirement plan.
Today we consider some proposals for improving retirement saving and investment across all incomes. Congress has adopted many positive changes since the original Employee Retirement Income Security Act 50 years ago, but these initiatives have been incremental. With the approaching insolvency of Social Security and the dearth of private retirement savings, a more comprehensive approach is needed. Here are some recent ideas.
About a dozen individual states have experimented with requiring employers with no retirement plan to automatically enroll employees into an IRA account by default and to begin deferring a specified percentage of the employee’s pay into the account. Investment defaults into a target date fund that adjusts asset allocation as the worker gets closer to retirement, but participants are free to select other investments.
Auto-enrollment IRAs would help address the lack of plan coverage for millions of workers but suffers from several deficiencies. The contribution limit for IRAs is just $7,000 compared with the $23,500 cap for 401(k) plans in 2025. There are also no employer matches, and companies with 10 or fewer employees are generally exempted, excluding over 13 million people.
The most disruptive idea comes from Yale University. Researchers there propose the outright elimination of 401(k) plans, replacing them with universal IRA accounts with dramatically increased limits ($30,500 for 2025). Employers would send payroll deductions to the IRA custodian, much like they currently forward deferrals to their 401(k) provider.