Americans’ retirement anxieties have been made more acute for at least three reasons:

1. The shift from traditional pensions to 401(k)-style plans (EBSA 2018)
2. The increase in life expectancy in retirement (NCHS 2018)
3. The decline in Social Security benefits as a share of earnings (Van de Water and Ruffing 2017)

Guaranteed Retirement Accounts are a key policy solution to the retirement crisis

Guaranteed Retirement Accounts (GRAs) are universal, affordable, and portable accounts that provide workers with a monthly paycheck in retirement that lasts the rest of their lives.

Every person who works for an employer that does not offer them a retirement plan would contribute 1.5 percent of every paycheck to a GRA, which would be matched by their employer.1 The employer match would be vested immediately.2

People who are self-employed would be automatically enrolled as well.

All workers would also receive an annual tax credit equal to 1.5 percent of pay, up to $600. The $600 would be enough to fully offset the employee contribution for workers earning $40,000 a year or less.

The account would be portable, even if a worker crosses state lines for a new job.

Workers would choose from a list of vetted investment managers with well-diversified portfolios and competitive fees. All funds would be pooled and managed together rather than in individually directed accounts to reduce overhead costs. These investment portfolios could include passive funds modeled on the Federal Thrift Savings Plan Lifecycle Funds as well as actively managed funds designed to take advantage of the potential for improved risk-adjusted returns available to long-term investors.

Upon retirement, a participating worker would receive a monthly check for the rest of the worker’s life. An average earner who retires at age 67 would be able to supplement a Social Security benefit of $38,000 per year with an estimated GRA benefit of around $13,000 per year, expressed in today’s dollars—increasing retirement income by roughly a third.3

Universal worker savings accounts are a tried and tested idea that have worked well in a variety of countries, including Australia. GRAs are also an incredibly popular idea in the United States: In a recent nationwide poll, the vast majority of respondents — including 78 percent of Democrats, 77 percent of Republicans, and 86 percent of millennials — supported this plan4 (AFT 2018).

Guaranteed Retirement Accounts bridge the gap for workers who lack employer-provided retirement benefits and can change workers’ lives for the better.

Who will this help?

The Guaranteed Retirement Account plan will help many employees, but especially women, people of color, young workers, and those employed by small businesses.

Workplace retirement plans are the easiest way for workers to save, and GRAs ensure all people have a retirement plan at work. Most households that lack access to a retirement savings plan at work have no savings in an Individual Retirement Account.5 Many businesses do not offer retirement plans: Some 40 million full-time, full-year private-sector workers ages 18 to 64 lack access to an employer-based retirement plan.6

Women and people of color are particularly at risk for an insecure retirement

Women ages 65 and older are 80 percent more likely to be impoverished than men ages 65 and older (Brown et al. 2016).

Additionally, among working-age families (where the head of household is age 32–61), the majority of black families (59 percent) and Hispanic families (65 percent) have no retirement account savings, whereas only a third (32 percent) of white non-Hispanic families lack such savings. Among those with retirement savings, the median savings for black and Hispanic families is $29,200 and $23,000, respectively; for white non-Hispanic families, it’s $79,500.7

Young Latinas and black women are at a disadvantage in getting started saving for retirement: While 59 percent of white millennial men are eligible to participate in an employer-sponsored plan, only 41 percent of millennial Latinas and 42 percent of black women millennials are (Brown 2018).

Young workers are concerned about their retirement and want a simple way to save

Young people see the struggles of their parents and grandparents. They begin their working life already anxious about their own ability to retire. They are eager for solutions and want a simple way to save.

Even when their employer does offer a retirement plan, young people still may not be able to take full advantage of that retirement plan. There is often a waiting period (up to a full year) before employees are eligible to participate, and employer contributions are often not fully vested for several years. Given that young workers tend to change jobs more frequently than older workers, they need a retirement plan that is easily portable and that will be consistently available to them throughout their careers.

Small businesses are much less likely to offer retirement plans

Whereas 90 percent of workers at establishments with 500 or more employees have access to a retirement plan, only half of workers at establishments with fewer than 50 employees do (BLS 2018). Some small business owners do not feel they have the expertise to set up a retirement plan for their employees. In addition, small businesses that want to provide benefits must compete against those that don’t.

Most small business owners want to build a better future—by, say, opening a beauty salon, operating a consulting business, or running a car-repair shop—not spend their limited resources (both time and money) hiring lawyers and accountants and figuring out how to choose a plan and appropriate investment options.

By keeping things simple and leveling the playing field, the GRA plan helps small businesses remain competitive while still providing a retirement benefit for all employees.

How did we get here?

EPI published board member Teresa Ghilarducci’s Guaranteed Retirement Account plan in 2008 (Ghilarducci 2008). In 2016, together with Tony James, executive vice chairman of The Blackstone Group, Ghilarducci co-authored Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans, which explains a version of the plan in detail (Ghilarducci and James 2016).

The push for a federal retirement plan builds on activity in the states. This state leadership is reminiscent of what happened in the 1930s with Social Security: In response to a nationwide crisis of older people falling into poverty, states began providing limited pensions. By the time the Social Security Act was signed into law in 1935, 30 states had implemented such programs (McSteen 1985). Over the last decade, states frustrated with the lack of action to reform retirement at the federal level have taken matters into their own hands. Ten states have enacted laws designed to improve retirement security, and many more have introduced legislation (AARP 2019). The states with laws in place are California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New York, Oregon, Vermont, and Washington.

However, state efforts are constrained. State plans are unable to ensure that employers contribute toward their employees’ retirement. To ensure employer contributions, a federal plan—such as the GRA plan—is required.

Also, the state plans created thus far aren’t portable across states, leaving workers in large parts of the country unprotected. The GRA plan would ensure that workers are covered nationwide and that coverage is seamless regardless of where they work or live.

GRAs offer those Americans who don’t currently have access to a retirement plan the means to establish the firm financial footing they need to live safely and securely into old age. In doing so, GRAs can change the lives of American workers for the better.

American workers of all ages are in need of a retirement plan that grows with every dollar earned—whether in long-term jobs or freelance work, at small businesses or large—and that provides steady income that lasts for the duration of retirement. The current system not only leaves many workers out altogether, but it also magnifies inequality through unequal employer contributions, investment options and strategies that vary greatly in terms of fees and risk-adjusted returns, and tax subsidies tilted in favor of high earners.

These challenges leave policymakers with two options: ignore the looming retirement crisis happening in their own backyard or take action now to show that universal workplace retirement savings is feasible.

Endnotes

1. The employer plan would have to be equal to or better than a Guaranteed Retirement Account, with an employer contribution rate of at least 1.5 percent and a total contribution rate of at least 3 percent.

2. Neither the employee nor the employer would be required to contribute on earnings over $200,000.

3. Source: EPI estimate based on Social Security Administration’s “scaled medium earner” for a worker age 21 in 2019 (Clingman, Burkhalter, and Chaplain 2018). The worker is assumed to retire at Social Security’s normal retirement age (67 for workers in this age cohort), with earnings at ages 66 and 67 assumed to equal earnings at age 65 in nominal terms. Price inflation (2.6 percent), wage inflation (3.8 percent), and life expectancy (23 years at age 65) assumptions are based on Social Security Administration, Single-Year Tables Consistent with 2018 OASDI Trustees Report, Tables V.A5 and V.B1. Outcomes will depend on investment returns, which may be less than the assumed 6.0 percent (3.4 percent adjusted for inflation). Amounts are expressed in 2019 dollars. Benefits increase to keep up with inflation.

4. Results are based on a survey of 3,000 people conducted in February 2017 and a survey of 1,000 people conducted in May 2018. “Millennials” are ages 18–34.

5. EPI analysis of Survey of Consumer Finances 2016 microdata.

6. EPI analysis of Survey of Consumer Finances 2016 microdata.

7. EPI analysis of Survey of Consumer Finances 2016 microdata.

References

AARP Public Policy Institute (AARP). 2019. “State Retirement Savings Resource Center: How States Are Responding” (web page). Accessed May 2019.

American Federation of Teachers (AFT). 2018. “Retirement Savings Plan Research” (unpublished presentation).

Brown, Jennifer Erin. 2018. Millennials and Retirement: Already Falling Short. National Institute on Retirement Security, February 2018.

Brown, Jennifer Erin, Nari Rhee, Joelle Saad-Lessler, and Diane Oakley. 2016. Shortchanged in Retirement: Continuing Challenges to Women’s Financial Future. National Institute on Retirement Security, March 2016.

Bureau of Labor Statistics (BLS). 2018. National Compensation Survey: Employee Benefits in the United States, March 2018, Table 2. September 2018.

Clingman, Michael, Kyle Burkhalter, and Chris Chaplain. 2018. “Replacement Rates for Hypothetical Retired Workers.” Actuarial Note No. 2018.9, Social Security Administration Office of the Chief Actuary, June 2018.

Employee Benefits Security Administration (EBSA). 2018. Private Pension Plan Bulletin Historical Tables and Graphs, 1975–2016.

Ghilarducci, Teresa. 2008. Guaranteed Retirement Accounts: Toward Retirement Income Security. Economic Policy Institute, March 2008.

Ghilarducci, Teresa, and Tony James. 2016. Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans. New York: Columbia Univ. Press.

McSteen, Martha A. 1985. “Fifty Years of Social Security.” Social Security Administration, August 1985.

National Center for Health Statistics (NCHS). 2018. Health, United States, 2017: With Special Feature on Mortality, Table 15.

Saad, Lydia. 2018. “Paying for Medical Crises, Retirement Lead Financial Fears.” Gallup, May 3, 2018.

Van de Water, Paul N., and Kathy Ruffing. 2017. Social Security Benefits Are Modest; Benefit Cuts Would Cause Hardship for Many. Center on Budget and Policy Priorities, August 2017.

“We can reform a retirement system that disproportionately hurts women and black and Hispanic families—only 40.5 percent of millennial Latinas and 41.7 percent of millennial black women are eligible to participate in their employer’s plan. Many Americans find themselves shut out of the retirement security they deserve after a lifetime of hard work. Guaranteed Retirement Accounts open the door to secure retirement for all Americans, no matter what race or gender.”—Martin Luther King III, President, CEO, and Co-Founder, Realizing the Dream Institute for Global Peace

“We need to address the country’s looming retirement crisis, and Guaranteed Retirement Accounts, coupled with efforts to strengthen Social Security, would do just that. Guaranteed Retirement Accounts put the features that we know work—automatic savings, low-cost professional investment management, and payouts that last a lifetime—into the hands of all workers so that they can have a secure retirement. All workers would benefit from Guaranteed Retirement Accounts, but women and people of color would benefit the most because they are particularly likely to be excluded from our current private retirement system.”—Neera Tanden, President and CEO, Center for American Progress

“We’re proud of the leadership California policymakers have shown with CalSavers1 in the absence of significant federal action on our nation’s retirement savings crisis. But a national solution is necessary to address the broader access gap and meet the needs of a modern, mobile workforce. We need to ensure bold proposals like the GRA are a part of the national effort.”—Fiona Ma, California State Treasurer

“All Americans deserve to have peace of mind in retirement. Guaranteed Retirement Accounts will provide a way to have a steady income, [allowing] our hardworking elders to live out the rest of their lives without the fear of hunger and homelessness. We need to end the needless suffering and anxiety!”—Dolores Huerta, President, Dolores Huerta Foundation, and Co-Founder, United Farm Workers of America

“All workers should have the same retirement security and peace of mind that teachers, police officers, firefighters, and other public employees have earned and have fought hard to maintain. Ghilarducci and James’s plan for universal, prefunded, secure-for-life pensions—supplements to Social Security—is a great exemplar of how to achieve a secure retirement.”—Randi Weingarten, President, American Federation of Teachers*

“Finally, a practical plan to address Americans’ lack of adequate retirement savings. This silent crisis, if not solved, will slow growth, challenge budgets, and hurt households across the United States. Tony James and Teresa Ghilarducci are proposing a smarter, more cost-effective way to secure the retirements of all Americans. This plan is critical to warding off a looming retirement savings crisis.”—Michael Bloomberg, former Mayor of New York City, Founder and CEO of Bloomberg LP*

“Too many suffer in old age. We need to make sure that all live out their lives in peace and joy. I support Guaranteed Retirement Accounts.”—Ethel Kennedy, Human Rights Activist

“There is a full-scale assault on the retirement security of all working Americans. Attacks on traditional pensions in both the public and private sectors, combined with the ineffectiveness of the defined contribution retirement systems, have created a retirement security crisis. America needs a more robust Social Security system coupled with a supplemental retirement system that is universal, secure, and adequate.”—Lee Saunders, President, American Federation of State, County and Municipal Employees

“As CEO of an organization that has provided guaranteed income to people in the not-for-profit sector for over 100 years, I believe GRAs have the potential to bring secure retirement income to all American workers. GRAs, combined with greater access to annuities in defined contribution plans, can help address a growing 21st-century concern: the need to enhance Americans’ financial security in retirement at a time of increasing longevity.”—Roger Ferguson, President and CEO, TIAA

“All Americans need to save for the future, but many find obstacles in front of them when trying to do so, like lack of access to a retirement plan at work. Fifty-five million American private-sector employees have no access to a retirement plan through their employer—this problem is worse for black and Hispanic workers. Fifty percent of black private-sector workers and 66 percent of Hispanic private-sector workers have no employer-sponsored retirement plan. We need to strengthen Social Security and ensure that every worker is eligible for a retirement plan like a Guaranteed Retirement Account, which breaks down barriers and ensures all workers have the opportunity to save.”—Hilary O. Shelton, Director and Senior Vice President for Policy and Advocacy, NAACP Washington Bureau

“America’s hardworking families should be able to retire with dignity and independence after a lifetime of work. That is why Social Security Works is working tirelessly to expand Social Security, while restoring it to long-range actuarial balance. That is also why we appreciate the work of Kathleen Kennedy Townsend and so many of our other colleagues who are fighting with us to ensure that all of us are able to retire with enough income to maintain our standards of living in old age when our work is done.”—Nancy J. Altman, President, Social Security Works

“I am proud of the pension benefits CalSTRS provides…not just income but peace of mind. All Americans need the ability to save and know that a monthly paycheck awaits them in retirement. That is why I endorse Guaranteed Retirement Accounts. It is time for all workers to get a fair shake and a more secure future.”—Harry Keiley, Chair, CalSTRS Investment Committee, and High School Teacher, Santa Monica-Malibu Unified School District

“In the face of a daunting national crisis, Tony James and Teresa Ghilarducci have proposed a practical bipartisan solution that deserves the attention of business leaders, policymakers, and legislators.”—Jim Sinegal, Co-Founder and former CEO, Costco*

“GRAs address what millions of Americans need—an easy way to save and a monthly check in retirement. The GRA approach makes saving simple and portable. GRAs may be especially attractive to millennials and younger people who need ways to get into the savings habit early in their working lives.”—Bill Arnone, CEO, National Academy of Social Insurance

“If we want retirement security, we need good retirement infrastructure. The GRA provides the three key features necessary for Americans to prepare for retirement: a frictionless path to saving, responsible and efficient investment options, and access to lifetime income. It would help workers and businesses and put the country on a more sustainable fiscal course.”—Dan Doonan, Executive Director, National Institute on Retirement Security

“In the absence of congressional action, many states have stepped in to address what is quickly becoming a retirement savings crisis. We need a national retirement system that allows workers to save with ease, is portable across state lines, and provides workers with the ability to choose carefully vetted plans. All Americans deserve the opportunity to save at work and the dignity of retirement security in their golden years. GRAs can help on all those fronts.”—Tobias Reid, Oregon State Treasurer

“Retiring with dignity shouldn’t be out of reach for so many Americans. Tony James and Teresa Ghilarducci’s plan is a bold and innovative fix to our broken retirement system.”—Chris Nassetta, President and CEO, Hilton Worldwide*

“It is finally time to come to grips with the fact that half of all businesses don’t have a savings plan for their employees. The GRA makes it easy for workers to save, take their savings from job to job, and have a monthly paycheck when they retire. Workers deserve peace of mind about old age. This will help.”—Brian Kettenring, Co-Executive Director, Center for Popular Democracy

“Women [ages 18–64] are 48 percent more likely to live in poverty than men. Retirement is particularly difficult for minority women. Only 40.5 percent of millennial Latinas and 41.7 percent of millennial black women are eligible to participate in an employer-sponsored retirement plan. The GRA offers a way for all women to save for retirement—in a way that is simple, easy, and portable.”—Heidi Hartmann, President and CEO, Institute for Women’s Policy Research

“Rescuing Retirement presents a thoughtful and compelling view of how the current retirement system is failing our people—and offers a thought-provoking, pragmatic approach to substantially enhancing retirement security for every American.”—Robert Rubin, 70th U.S. Treasury Secretary*

“Too many Americans fear they will have to work forever but know that, in reality, they have no chance of doing so. A Guaranteed Retirement Account—that’s funded automatically, that follows us from job to job, and that delivers a paycheck for life—will change our lives. Thanks to the Economic Policy Institute for helping make it happen.”—Hon. Joshua Gotbaum, Guest Scholar, Economic Studies Program, The Brookings Institution

“Older Americans’ number one fear about retirement is that they won’t have enough money to afford retirement (according to MarketWatch). That’s not the kind of retirement Americans deserve. We need a system like the GRA where workers can save with ease, where employers contribute, and where retirees get a monthly paycheck when they retire, every month, every year. They can breathe easy, knowing they won’t end up impoverished at the end of their lives.”—John Burbank, Executive Director, Economic Opportunity Institute

“Half of Americans have no savings for retirement, largely due to the fact that half of all businesses don’t offer a retirement plan. Guaranteed Retirement Accounts make saving easy and portable. When you retire, you get a monthly paycheck for the rest of your life.”—Andrea Levere, President, Prosperity Now

“As the founder and CEO of a small business that works in low-income communities, [I believe] the Guaranteed Retirement Account is just what we need. It would make it easier for my employees to save and give them a lifetime income. And it also would help our tenants who don’t have any retirement benefits and their families. The growing income gap is an increasingly critical issue and this is one innovation that helps address it.”—Martin Muoto, CEO, SoLa Impact Fund

“Americans who work hard all their lives, doing paid and unpaid work, should not have to spend decades worrying about their futures. As our economy changes, fewer and fewer people have the benefit of retirement plans, yet everyone deserves security in retirement. GRAs help Americans prepare for the future and be less anxious about the present, creating a more secure social foundation for all of us. Other countries like Australia can do this. Why not us?”—Anne-Marie Slaughter, CEO, New America

“It is not easy for most American workers to save for retirement on their own. GRAs provide a way for many more employers to help their employees reach retirement goals. A basic GRA is a 1.5 percent employee paycheck contribution matched by a 1.5 percent employer contribution. GRAs provide an easy way to save for retirement, portability from job to job, a way for retirees to get monthly payments in retirement, and a way for people to achieve their retirement goals.”—Deborah Schnitz, actuary at a financial services corporation

“Two-thirds of millennials have nothing saved for retirement. They change jobs more often than their parents and work for employers that don’t offer retirement plans. A poll of 4,000 Americans found that 86 percent of millennials support GRAs—a plan where it is easy to save and that is portable and provides a monthly paycheck upon retirement.”—Steven Olikara, Founder and President, Millennial Action Project

“Ghilarducci and James aim to eliminate the retirement savings gap for those earning under $100,000 through affordable, low-fee, mandatory accounts with automatic annuitization. The pairing of an expert retirement economist and a financial hotshot has produced an innovative approach to this critical policy challenge. We need every idea we can get!”—Alicia Munnell, Director, Center for Retirement Research, Boston College*

“The Pension Rights Center is committed to working toward a new pension system, on top of Social Security, that is universal, secure, and adequate, to ensure that all working Americans can retiree with independence and dignity. Such a system would require employer and employee contributions, be pooled and professionally invested, and pay out a stream of income—ideas that are contained in the GRA and other comprehensive proposals.”—Karen Ferguson, Director, Pension Rights Center, and Karen Friedman, Executive Vice President, Pension Rights Center

“As small businesses help local economies thrive by employing local talent, we should also encourage and assist those in our employment to set aside funds for retirement. This helps ensure not only the futures of our valued employees but also the very communities in which our small business are located. All options should be considered to help employees plan for their futures, including Guaranteed Retirement Accounts and other creative programs.”—Terence Wise, Chairman and CEO, Forward Industries

“We are proud of our efforts to reach and empower the million Marylanders who don’t have a retirement plan. But we look forward to a federal effort like the GRA where all Americans would have the opportunity to save with ease, to have a retirement savings account that is portable from job to job and across state lines, and to know that they can have a dependable monthly paycheck when they retire. That is a noble goal—one we can and must achieve!”—Nancy Kopp, Maryland State Treasurer

“Every American should have the peace of mind that they have saved for their golden years and can retire with dignity. In Illinois we launched Secure Choice2 to provide 1.2 million workers with the opportunity to easily save for retirement where they work. Action at the federal level could provide this same opportunity to millions more Americans. I’m encouraged by the efforts to create GRAs at the national level, making it easy for workers to save and allowing accounts to be portable across state lines.”—Michael W. Frerichs, Illinois State Treasurer

“Rescuing Retirement is an explicit call to action aimed directly at those with the greatest stake in the problem—the millions of workers, employers, and policymakers whose lives will be affected by the actions (or inaction) of today’s stakeholders.”—Stephanie Kelton, Professor of Economics and Public Policy, Stony Brook University’s College of Arts and Sciences*

“Lack of employer retirement programs, lack of portability from state to state among programs, and lack of vesting and reinvesting opportunities to move in and out of programs as their circumstances change are often insurmountable challenges for individuals who wish to save for their retirement years. Guaranteed Retirement Accounts can resolve each of these challenges while simultaneously providing affordable, safe retirement savings through employer-shared private-sector investing.”—Sen. Roy C. Afflerbach, Ret., Public Policy Advisor, National Adult Day Services Association (NADSA)

* These quotations were taken from the back cover of Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans, a Columbia University Press book by Teresa Ghilarducci and Hamilton (“Tony”) E. James that explores the Guaranteed Retirement Account proposal.

1. CalSavers is California’s state-sponsored retirement savings plan.

2. Secure Choice is Illinois’s state-sponsored retirement savings plan. For more information about the program, see the Secure Choice website. Videos describing the program are available on the site and also here and here.