June 1, 2026

The Honorable Daniel Aronowitz
Assistant Secretary
Employee Benefits Security Administration
U.S. Department of Labor
200 Constitution Avenue NW
Washington, DC 20210

Re: Fiduciary Duties in Selecting Designated Investment Alternatives, RIN 1210-AC38

Dear Assistant Secretary Aronowitz:

I submit these comments on behalf of the Economic Policy Institute (EPI) on the Department of Labor’s (DOL) Notice of Proposed Rulemaking on Fiduciary Duties in Selecting Designated Investment Alternatives.

EPI is a nonprofit, nonpartisan think tank that has worked for 40 years to center working families in economic policy discussions.

EPI strongly opposes the Employee Benefits Security Administration’s (EBSA’s) proposed rule on Fiduciary Duties in Selecting Designated Investment Alternatives. The rule would gut protections for retirement savers in 401(k) and other participant-directed plans covered by the Employee Retirement Income Security Act of 1974 (ERISA). In addition to our comments here, EPI has signed onto a joint comment letter with other consumer, retiree, and worker advocacy organizations expressing concern that the rule would add complexity, raise fees, and return us to an era when retirement plan participants had little protection from poor investment choices. This letter will expand on that letter to critique some of the economic arguments made in support of the proposed rule.

This letter will focus on risk, questioning EBSA’s claim that loosening protections for retirement savers will maximize risk-adjusted returns by providing access to alternative investments.

• EBSA attempts to redefine fiduciaries’ duty of prudence in selecting investment options as “maximizing risk-adjusted returns net of fees” no matter the risk rather than balancing the goals of maximizing returns and minimizing risk. (Unless otherwise noted, quotations are from the proposed rule.)
• EBSA ignores the fact that retirement savers face a worse principal-agent problem than defined benefit pension funds, since investment options are chosen by plan fiduciaries but participants bear the risk of losses.
• EBSA ignores the fact that even if pension funds that invest in alternative assets earn an illiquidity and risk premium (a big “if”), and even if individual retirement savers retire at the time they planned to (another big “if), individual retirement savers with limited investment horizons face greater timing risk and should be more risk averse.
• EBSA assumes that any asset class that does not move in sync with stock and bond markets adds useful diversification even if it is a speculative asset with a zero expected real return that only adds volatility.
• EBSA’s case for asset class diversification rests on modern portfolio theory, which assumes investors are well-informed and risk-averse, which is not a realistic description of markets for alternative assets.
• EBSA focuses narrowly on asset class diversification, ignoring the fact that adding alternative assets can concentrate rather than spread risk if these assets cannot be indexed.

Plan fiduciaries must adhere to a duty of prudence and a duty of loyalty.

Under ERISA, fiduciaries may be sued by participants or the Department of Labor (DOL) for breach of these duties when selecting investment options for participant-directed plans. Fiduciaries are required to have or obtain the expertise and information to make substantively sound decisions—going through the motions or acting with good intentions is not enough.

With minor exceptions, such as limits on employer stock, ERISA does not specify what types of investments may be included in 401(k) and similar plans. Nevertheless, plan fiduciaries, using their good judgement and leery of lawsuits, have generally avoided alternative investments that cannot be marketed to small and unsophisticated (nonaccredited) investors in other contexts. Instead, fiduciaries have increasingly moved toward low-cost index funds and similar broadly diversified and publicly traded investments that are recognized as appropriate options for retirement savers.

Lawsuits on behalf of plan participants who suffer losses from fiduciaries’ failure to uphold their duties are a critical enforcement tool. According to AARP, “Courts have repeatedly recognized that these cases play a meaningful role in improving plan governance, reducing excessive fees, and protecting participants’ long-term retirement security, without burdening employers that comply with the law.”1

The stated purpose of the proposed rule is to expand access to alternative investments.

EBSA claims that the threat of lawsuits harms retirement savers by limiting investment options available to plan participants. EBSA claims that “regulatory burdens and litigation risk…interfere with the ability of American workers to achieve…the competitive returns and asset diversification necessary to secure a dignified and comfortable retirement.”

The proposed rule includes a list of alternative assets that President Trump earlier mentioned in an executive order, including private equity, private credit, digital assets (“crypto”), and commodities.

EBSA notes that under ERISA these assets are not explicitly prohibited from being included among investment options in participant-directed plans. However, EBSA warns that plan fiduciaries may be excluding more complex investment options “not necessarily in response to a prudent assessment of whether the features in those investments are best suited to the needs of plan participants and beneficiaries, but rather because of the risk of litigation if plan fiduciaries depart from more traditional investments in favor of more creative or novel options.” It provides no evidence for that assertion and does not rebut the valid presumption that this could be the framework operating as intended: fiduciaries have made prudent assessments, found these assets wanting, and decided against them— recognizing that doing otherwise would appropriately expose them to litigation risk.

EBSA reframes the goal as maximizing risk-adjusted returns” no matter the risk rather than balancing risk and return.

According to EBSA, ERISA gives fiduciaries “maximum discretion and flexibility” to determine which investment options “offer the opportunity for participants to maximize risk-adjusted returns on their retirement assets net of fees.”

However, the goal of ERISA, as the name makes clear, is retirement income security, not “maximizing risk-adjusted returns net of fees.” Under ERISA, fiduciaries are required to select a diversified menu of investment options that minimize the risk of large losses for retirement savers.2 Such losses can be caused by sharp downturns or by cumulative underperformance over many years. Retirement savers will face both types of risk if they invest directly or indirectly in the alternative assets listed in the proposed rule.

Leverage is the most obvious way to maximize risk-adjusted returns, but also the most obvious way to amplify the risk of large losses. Reputable financial advisors do not advise retirement savers to maximize risk and return through leverage, even in the case of early career workers who have more time to adjust their contributions to the plan if their risky strategy fails.

EBSA ignores the subject of leverage entirely in the proposed rule, as well as any discussion of the appropriate level of portfolio risk for retirement savers (except to claim that asset diversification reduces it). Implicitly, then, EBSA’s self-described “asset-neutral” approach is also neutral with respect to the amount of risk retirement savers should face, focusing only on maximizing returns for any level of risk. This is especially dangerous given the widespread but mistaken belief that investment returns will average out over long investment horizons.3

Encouraging risky investments harms not only unsophisticated retirement savers, but also taxpayers who subsidize accounts intended to help ordinary workers save for retirement.

Though certain risky investment options may benefit wealthy participants with a high risk tolerance, the tax advantage is intended to promote retirement savings, and retirement security, for ordinary workers, not amplify wealth inequality.

Regulatory agencies have repeatedly warned of alternative asset risks.

DOL and other regulators previously acknowledged the risks associated with private market investments, including opacity, lack of regulatory oversight, complexity, illiquidity and high fees. In a June 3, 2020, letter to private equity managers, DOL noted that private equity investments had longer time horizons, higher fees, no easily observed market value, and were subject to different regulatory requirements and oversight than publicly traded securities.4

The letter suggested that plan fiduciaries might want to limit private equity investments to a specified percentage of a fund, have the investments independently valued according to agreed-upon financial standards, and require additional disclosures to meet the plan’s ERISA obligations to report information about the current value of the plan’s investments. These suggestions were generally ignored in the proposed rule.

After the Securities and Exchange Commission (SEC) issued a risk alert on June 23, 2020,5 warning that private equity and hedge fund investors may have paid more in fees and expenses than they should have and may not have been informed of conflicts of interest,

DOL issued a supplemental statement on December 21, 2021,6 citing the SEC warning and stakeholder comments challenging the earlier letter’s uncritical acceptance of some industry talking points, notably the claim that private equity could “offer plan participants who have longer investment horizons an equities-based investment choice that may enhance retirement outcomes when compared to investment choices containing only publicly traded securities.” The DOL statement also noted that while some fiduciaries have experience evaluating private equity investments for defined benefit pensions, many fiduciaries of small individual account plans do not.

The DOL statement was rescinded in response to President Trump’s executive order of August 7, 2025,7 without addressing any of the issues raised about the advisability of including private market investments among 401(k) plan options.

DOL and other regulators have also previously been highly skeptical of crypto as an investment, let alone one offered to retirement savers. On May 11, 2021, the SEC issued a staff statement warning that Bitcoin and Bitcoin futures were highly speculative investments.8 On January 10, 2024, SEC Chair Gary Gensler went further, describing Bitcoin as “primarily a speculative, volatile asset that’s also used for illicit activity including ransomware, money laundering, sanction evasion, and terrorist financing.”9 The Federal Reserve and other bank regulatory agencies also issued multiple warnings about crypto assets.10

Citing the SEC warnings, DOL issued guidance on March 10, 2022, advising 401(k) plan fiduciaries to exercise “extreme care” before adding cryptocurrencies to plan options, noting that they were difficult to valuate, even by experts, and posed custodial and recordkeeping concerns.11

The Federal Reserve and other bank regulators rescinded their guidance on April 24, 2025, and DOL followed suit on May 28, 2025, without addressing any of the issues raised about crypto risks. Beginning in 2025, the SEC also adopted a more accommodating stance toward crypto, for example, asserting that meme coins were not subject to federal securities laws12 and dismissing an enforcement action against Coinbase.13

The SEC prevents firms from marketing private assets to small (“retail”) investors for good reasons.

Laws including the Investment Company Act and Investment Advisers Act, both enacted in 1940, give the SEC the authority to regulate securities marketed to retail investors.14 In addition to requiring consistent valuations and disclosures, these laws—and regulations and guidance based on them—limit the use of leverage and guard against potential conflicts of interest.15 The sale of private funds that do not meet these requirements is generally limited to sophisticated “accredited” investors or “qualified purchasers.”

These laws are intended to protect investors who are not equipped to assess the value or risk of private market investments. During the Biden administration, the SEC proposed rules that recognized that even accredited investors in private funds were not provided with sufficient information or protection from conflicts of interest.16 The rules were overturned by the Fifth Circuit Court of Appeals based on the assumption that investors in these funds were sophisticated and able to bear losses, not that they had adequate information and protection.17

Are risk, illiquidity, and complexity opportunities to earn higher returns?

EBSA acknowledges some of the obvious disadvantages of alternative investments, but frames these as opportunities to earn a premium for accepting these risks:

Alternative asset investments are often less liquid than the publicly traded stock and bond funds that are held by funds that plan fiduciaries often make available to plan participants. Illiquid investments generally offer an illiquidity premium to investors who are willing to hold their investment, for some time, without selling it for cash. Many retirement savers, particularly younger workers, have long investment time horizons until retirement and, therefore, fit the profile of an investor who can benefit from a liquidity premium.

EBSA elsewhere alludes to “obstacles that cause a relatively higher risk premium when compared to traditional investments, such as illiquidity or information asymmetry,” but suggests that an expanded market tailored to the needs of retirement savers could reduce liquidity and valuation risks:

As this market matures a new equilibrium should be reached where there is a larger pool of viable and vetted investments, expanded by alternative assets, for asset managers to o􀆯er to plan sponsors. The tradeoff for this increased market penetration is a reduction in illiquidity premium. As the risks associated with investment in alternative assets falls, so too does the risk premium investors in the assets will enjoy.

The idea that retirement savers could knowledgeably accept such tradeoffs ignores the fundamental problem that information asymmetry, complexity, and lack of regulatory oversight make reliable ex ante valuation of private market assets impossible.18 Expanding the market, whether or not it improves liquidity, does not address this fundamental problem.

Private market investments should be niche products for sophisticated investors.

The accurate valuation of public assets is made possible by the mandatory disclosure of relevant information and market signals from daily trading. A key feature of public markets is two-sided competition, wherein knowledgeable buyers and sellers eliminate biased prices so that even unskilled and uninformed investors can get a fair shake.19 These sources of information are generally unavailable to private market investors, who in most cases must also contend with complex structures, strategies, and incentives.

Private markets are characterized by asymmetric information, so outside investors cannot assume that investment opportunities are fairly priced. Institutional investors instead rely on private fund managers’ past performance, reputational risk, and performance incentives in deciding whether to enter into limited partnerships with fund managers, known as general partners. Institutional investors with clout can also demand access to information that may not be provided to all limited partners and would not be made available to retirement savers. However, general partners’ incentives are blunted and distorted by their ability to earn millions in fees, and often in related party transactions, even when funds underperform or sustain losses, a problem exacerbated by the favorable tax treatment of fund managers’ share of investment returns, known as carried interest. Past performance, meanwhile, has been found to be a weak predictor of future performance.

In a comment submitted about the proposed rule, former investment banker Jeffrey Hooke and business school professor Michael Imerman estimated that private market investments should earn a premium of 200-500 basis points over their public counterparts to compensate for illiquidity, leverage and opaque financial reporting. Far from earning such a premium, Hooke and Imerman estimate that over 95% of state pension plans investing in private assets fail to beat a 60-40 stock-bond benchmark over long periods.20 Even if some institutional investors with superior clout and expertise can expect higher risk-adjusted returns by investing in private market assets, the wide dispersion in fund performance suggests that other institutional investors are not assured of benefiting from these investments and that retirement savers would fare even worse.21

The expected real return on purely speculative assets is zero.

With private market investments, the challenge lies in gauging the expected risk and return of underlying assets. With most crypto and other speculative assets, there is no expectation of profit unless the buyer has better information than the seller. At best, these assets are “digital gold,” used as a store of value, a means of exchange, or a hedge against inflation, but with added risks associated with custody, safekeeping, and regulatory uncertainty.22

As the SEC acknowledged last year, some crypto assets can be compared to physical collectibles like rare tulip bulbs, baseball cards, and Beanie Babies because they are nonproductive investments.23 Under the Economic Recovery Tax Act of 1981, most physical collectibles are banned from tax-favored retirement plans because they “do not contribute to productive capital formation.”24 Though digital collectibles, unlike physical collectibles, are not currently banned from investment options offered to participants in tax-favored retirement plans, it is not clear why they should be exempted.25

Similar to much crypto, commodity futures are largely speculative and regulated by the Commodities Future Trading Commission (CFTC), though investors may be compensated for hedging the risk of producers or consumers. The New York Times recently described how the CFTC’s enforcement capacity has been hollowed out and the agency has become captive of crypto and prediction markets.26

A market for speculative assets exists for the same reason there are casinos, racecourses, and prediction markets: A subset of the population, rather than being risk averse, likes to gamble. However, gambling does not belong in tax-subsidized accounts intended to promote retirement income security.

Assessing the performance of private funds poses serious challenges.

The debate around whether investing in private market assets is worth the high fees, risk, and illiquidity is complicated by a lack of consistent disclosure requirements. As documented by Oxford University professor Ludovic Phalippou and others, private equity general partners, when marketing themselves to pension funds and other potential investors, cite irrelevant or misleading statistics, sometimes manipulating the timing of valuations or excluding funds that have been committed but not yet invested to inflate reported returns.27

Given the subjectivity of internal valuations and evidence that they are misleading and manipulated, limited partners’ return on investment can only be known once assets have been sold and the proceeds distributed. This happens too infrequently to be useful in making investment decisions, a problem exacerbated by the fact that private fund managers can prevent limited partners from fully exiting.28

Even after the return on investment is known to limited partners, it is difficult to know whether the return was sufficient to compensate for risk and illiquidity, since the degree of leverage and other risk factors is generally unknown to outside investors.

The available evidence does not show that alternative assets improve risk-adjusted returns. Because performance metrics reported by private equity and other alternative assets are unreliable, researchers have looked at whether institutional investor portfolios that include these investments have outperformed benchmarks composed of broad stock and bond indices. Many found that they did not, especially in the years since the 2008 financial crisis.29

For example, a 2022 report from the Center for Retirement Research at Boston College found that public pension funds that invested more in alternative investments did not have higher returns, though the investments may have served to dampen reported volatility.30 Similarly, researchers at the Canada Pension Plan Investment Board found that while private equity appeared to outperform stocks before the financial crisis, it did not do so on a risk-adjusted basis.31

A more positive study published by the Georgetown Center for Retirement Initiatives found that 401(k) participants would have seen slightly higher returns over a 20-year period if target date funds had included private equity and other alternative investments.32

However, even this industry-funded study showed that large-cap U.S. stocks outperformed private equity in the decade after 2011. The study relied on a proprietary database of pension fund returns that is subject to major revisions and may not include a representative sample of pension funds.

Perhaps the most telling indicator of private funds’ mediocre performance is the industry’s resistance to providing comparable metrics even to their own investors. In 2024, after the SEC attempted to standardize information about fees and performance provided to limited partners in private funds,33 the industry challenged the rule before the Fifth Circuit Court of Appeals, which sided with the industry on the basis that access to the funds was generally limited to “some of the most sophisticated and wealthiest investors.”34 Of course, this will no longer be true if private assets are marketed to retirement savers.

The proposed “safe harbor” does not protect retirement savers—or fiduciaries.

At the heart of the proposed rule is what EBSA describes as a process-based “safe harbor” that would shield fiduciaries who adhere to the process from liability even if the investment options they select for the plan are poor choices. EBSA lists six factors that fiduciaries should consider when selecting investment options: performance, fees, liquidity, valuation, benchmarking, and complexity.

In EBSA’s view, fiduciaries who follow the six-step process should be granted a “presumption of prudence” and given “the discretion and flexibility to determine when designated investment alternatives, including those that contain alternative investments, offer the opportunity for participants to maximize risk-adjusted returns on their retirement assets net of fees.”

This check-the-box process does not give fiduciaries the tools they need to assess opaque, complex, illiquid, and largely unregulated investments. The proposal also does not address disclosures to plan participants, who would be even less prepared to make informed decisions.

The types of alternative investments listed in the proposal, by their nature, cannot be reliably evaluated according to the criteria in the process-based rule, even assuming fiduciaries have the skill and experience to understand complex structures and incentives.

Without additional disclosure requirements and regulatory oversight, for example, it is impossible to reliably assess risk and liquidity in private assets in order to choose a comparable benchmark.

ERISA lawyers warn that the regulatory “safe harbor” may give fiduciaries a false sense of security without shielding them from lawsuits.35 The proposed rule assumes that courts will defer to the agency in granting a “presumption of prudence” to fiduciaries, even though no such presumption exists in the statute and the U.S. Supreme Court recently ruled in Loper Bright that courts should exercise independent judgement in interpreting laws rather than deferring to agency interpretations.

EBSA assumes that diversifying across asset classes reduces risk.

EBSA emphasizes that ERISA does not restrict plan fiduciaries from considering any type of asset class, suggesting that all types should be made available to retirement savers. This is akin to arguing that since USDA dietary guidelines do not explicitly ban junk food, it should be part of every diet.

EBSA cites modern portfolio theory to argue that “the optimal constrained portfolio will have lower risk-adjusted returns than that of an unconstrained portfolio.” Modern portfolio theory is a highly abstract model that relies on unrealistic assumptions, including perfect information and perfectly liquid markets, that clearly do not describe private markets.

Though markets for crypto and other speculative assets can be highly liquid and do not depend on access to information, modern portfolio theory also assumes that investors are risk averse, and risk-averse investors do not engage in pure speculation.

Modern portfolio theory can be a useful approximation of reality, for example, in support of passive investment in publicly traded securities. But it cannot preclude the existence of overpriced assets designed to lure naïve investors into private markets where information is asymmetric and the “smart money” has no way to capitalize on better information through short selling.

Diversification across asset classes does not necessarily reduce risk, especially if the asset that is added is itself not diversified.

Diversification across asset classes can be a valid reason to expand the range of available investment options to retirement savers. However, whether an asset class will improve risk-adjusted returns depends on net returns, volatility, and correlation with stocks and other portfolio assets.

Alternative investments are often touted for their supposed low volatility and low correlation with stocks. But as Morningstar and others have pointed out, this reflects infrequent valuations and should not be mistaken for low risk: “With low disclosure and transparency, frequent use of leverage, and valuations that are both lower in scale and frequency than public markets, [private investments] should be considered one of the riskiest asset classes in an investor’s portfolio, despite often being sold as having lower risk profiles.”36

Private assets tend to be correlated with their public counterparts: private equity with stocks, private credit with bonds, etc. Speculative assets such as crypto may be less correlated with traditional investments, but the volatility in returns is essentially noise— adding risk without a risk premium since investors in these assets are not risk averse. EBSA’s narrow focus on asset class diversification ignores the fact that adding alternative assets can concentrate rather than spread risk if the assets themselves are not diversified.

A major concern is that indexing is generally not possible with private assets. A target date fund composed of broad market indices is more diversified than one that includes a 15% private equity fund with holdings in 10 companies selected and overseen by the same general partners.

There are important differences between pension funds and individual retirement savers.

The proposed rule implements a section of President Trump’s August 7, 2025 Executive Order, “Democratizing Access to Alternative Assets for 401(k) Investors,” which argues that that since most defined benefit (DB) pension funds invest in alternatives, participants in 401(k) and other defined contribution (DC) plans are being disadvantaged.37

This ignores key differences between DB pensions and DC plans, notably the fact that fiduciaries who select DB pension investments are employed by the party that bears the risk (the plan sponsor). In contrast, DC plan sponsors and their fiduciary advisors choose the investment options but the risk of losses falls on retirement savers.

Illiquid investments can trip up retirement savers who need to tap their savings earlier than planned due to unanticipated health shocks, job loss, or caregiving responsibilities. Firms marketing target date and asset allocation funds with limited private asset “sleeves” assure retirement savers that between the more liquid assets in the fund and incoming contributions, cashing out early will not be a problem. However, this assumes a stable market—no panic selling—and that investors who cash out will not be saddled with high fees with little to show for it.

Less often noted than the illiquidity issue is the fact that timing (or “sequence-of-returns”) risk should make retirement savers more risk averse than pension funds and other institutional investors with indefinite investment horizons even if they do not cash out early.38 Whereas pension funds and university endowments continuously buy and sell assets on behalf of overlapping generations of beneficiaries, retirement savers are more sensitive to poor investment performance over limited investment horizons, especially once workers have built up savings and are approaching retirement.

Retirement savers will be defaulted to high-cost and risky investments.

EBSA suggests that both direct and investments in alternative assets should be permitted, raising the possibility that retirement savers—including those close to retirement—could put all their retirement savings in crypto and other risky assets. However, EBSA suggests that “a more likely scenario…is that these alternatives would be included as one part of a menu option,” citing as examples target date funds and asset allocation funds with annuity or private equity components similar to those the industry has begun marketing to retirement savers. Target date and balanced asset allocation funds can be “qualified default investment alternatives” (QDIAs) into which participants can be defaulted unless they opt out.

The idea that alternative investments could be embedded in target date and similar funds is not reassuring. Retirement savers who are defaulted into QDIAs are generally unsophisticated investors who will need to rely on their investments to cover living expenses in retirement and have been led to believe that these defaults are relatively safe. DOL’s website describes default investments as investments “that generally minimize the risk of large losses and provide long term growth.”39

If the proposed rule takes effect, many workers could unknowingly invest 15% or more of their retirement savings in assets that DOL has previously characterized as high-cost, complex, illiquid, and difficult to evaluate, reversing what has been a welcome shift to low-cost passive investments.

401(k) investment options have improved in recent years with the widespread adoption of target date and balanced funds composed of low-cost stock and bond indices and similar broadly diversified passive investments. This has enabled retirement savers to lower costs, automatically rebalance portfolio allocations, adjust portfolio risk as workers approach retirement, and maximize diversification across publicly listed securities.

The rule would harm not only retirement savers, but also the broader economy.

The aggregate value of largely unregulated private funds, including both private equity and private credit, now approaches that of regulated public funds.40 While it is highly concerning that unregulated private markets are growing at the expense of public ones, the solution is extending disclosure requirements and other investor protections to private markets, not increasing the size of unregulated markets that expose investors and other economic actors to exploitation and excessive risk.

Private equity has often been a destructive force in the economy. It has a reputation for loading companies up with debt, stripping them of assets, and often driving them into bankruptcy, leaving workers, suppliers, and other stakeholders high and dry.41 Businesses destroyed by private equity often operate in sectors like hospitals and newspapers where the damage to communities extends far beyond workers and suppliers.

Private equity’s fee structure incentivizes risk because general partners reap a share of gains when gambles pay off but are largely insulated from losses, which are borne by lenders and other investors. This is exacerbated by the preferential tax treatment of general partners’ share of earnings. Experts have also expressed alarm over the rapid expansion of unregulated private credit, which poses a threat to financial stability.

The proposed rule comes at an especially bad time. Agency understaffing, weakened enforcement, federal legislation, and a Supreme Court decision in Anderson v. Intel could exacerbate the potential effects of the rule.

Experts warn that deregulation could fuel a speculative bubble like the one in the roaring 1920s.42 When the bubble pops, everyone will pay, whether they were playing or not. As University of Chicago Law School Professor William Birdthistle, the former director of the SEC’s Division of Investment Management, warns:

The administration is…encouraging individual retirees to vouchsafe their life savings to exotic financial offerings like private equity. Private equity is, as the name suggests, notoriously opaque, which means retirees would know little about what they’re investing in. The White House and the private fund lobby argue that this policy will “democratize” access to alternative assets and promote “better returns.” But such a plan, which comes with neither the information nor the protections needed to defend investors from serious economic risks, is as compelling as a plan to “democratize” brain surgery. 43

The proposed rule is supported by a financial industry seeking new investors and plan sponsors hoping to reduce litigation risk, not retirement savers.

Whether or not alternative investments have performed well in the past, market saturation, higher interest rates, and other factors will likely reduce future returns. A shrinking client base has made it hard for private equity funds to exit their investments and return funds to clients. Investors in private credit funds have also become skittish due to concerns about lending standards and valuations, prompting some firms to restrict redemptions.44

A survey conducted on behalf of AARP found that “Americans have little interest in adding private market investments and cryptocurrency to workplace retirement accounts.”45 As institutional and wealthy investors try to o􀆯load underperforming funds, retirement savers will be given access to the dregs even as overall quality declines. Retirement savers will be “buying a pig in a poke”—assuming they are even aware they are buying a pig.

We need to better regulate alternative investments, not to loosen regulations protecting retirement savers.

Financial regulations, including disclosure requirements and fiduciary rules, serve multiple purposes. They protect investors, prevent systemic risks such as bank runs, and disclose information needed for financial markets to direct capital to productive uses, rather than activities that do not promote economic growth but simply transfer wealth to insiders from those with less information like most retirement savers and small investors.

Without reliable and comparable information, it is difficult for even sophisticated investors to know whether alternative investments are worth their high cost. We need better regulations to help all investors make informed decisions and guard against conflicts of interest; to fix incentives that encourage value-destroying business practices by private equity and other underregulated financial industries; and to curtail abuse of tax-favored plans by wealthy investors, who have an incentive to load 401(k) accounts up with assets that are difficult to value in order to skirt contribution limits and take maximum advantage of tax subsidies tied to investment returns.

Rather than weakening protections for retirement savers, DOL should work with other agencies to regulate private markets to enable all investors to make informed decisions and protect the economy.

For these reasons, I urge EBSA to withdraw the proposal. Working families need retirement income security, not risky and costly investments ill-suited for small investors.

Thank you for considering my comment.

Respectfully submitted,

Monique Morrisey, Ph.D.
Senior Economist
Economic Policy Institute

1. AARP, “ERISA Litigation Reform: Myth vs. Fact,” accessed June 1, 2026. https://www.aarp.org/content/dam/aarp/politics/advocacy/2026/03/erisa-litigation-reform-myth-v-fact.pdf

2. DOL, “Fiduciary Responsibilities,” web page accessed May 25, 2026. https://www.dol.gov/general/topic/retirement/fiduciaryresp

3. Paul Samuelson, “Risk and Uncertainty: A Fallacy of Large Numbers,” Scientia, Vol. 98, pp. 108-113. https://www.casact.org/sites/default/files/database/forum_94sforum_94sf049.pdf. John Rekenthaler, “How Time Horizon Affects the Odds of Equity Investing,” Morningstar, October 19, 2023. https://www.morningstar.com/columns/rekenthaler-report/how-time-horizon-affects-odds-equity-investing

4. Louis J. Campagna, Information Letter 06-03-2020, EBSA, June 3, 2020. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/information-letters/06-03-

5. SEC Office of Compliance Inspections and Examinations, Risk Alert, June 23, 2020. https://www.sec.gov/files/Private%20Fund%20Risk%20Alert_0.pdf

6. DOL, “Supplement Statement on Private Equity in Defined Contribution Plan Designated Investment Alternatives,” December 21, 2021. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resourcecenter/information-letters/06-03-2020-supplemental-statement

7. DOL, “US Department of Labor Rescinds 2021 Supplemental Statement on Alternative Assets in 401(k) Plans,” August 12, 2025. https://www.dol.gov/newsroom/releases/ebsa/ebsa20250812

8. SEC, “Staff Statement on Meme Coins,” February 27, 2025. https://www.sec.gov/newsroom/speechesstatements/staff-statement-meme-coins

9. Gary Gensler, “Statement on the Approval of Spot Bitcoin Exchange-Traded Products,” January 10, 2024. https://www.sec.gov/newsroom/speeches-statements/gensler-statement-spot-bitcoin-011023

10. Board of Governors of the Federal Reserve System, “Federal Reserve Board announces the withdrawal of guidance for banks related to their crypto-asset and dollar token activities and related changes to its expectations for these activities,” April 24, 2025. https://www.federalreserve.gov/newsevents/pressreleases/bcreg20250424a.htm

11. EBSA, “401(k) Plan Investments in “Cryptocurrencies,” Compliance Assistance Release No. 2022-01, March 10, 2022. https://www.dol.gov/agencies/ebsa/employers-and-advisers/plan-administration-andcompliance/compliance-assistance-releases/2022-01

12. SEC Division of Corporation Finance, “Staff Statement on Meme Coins,” February 27, 2025. https://www.sec.gov/newsroom/speeches-statements/staff-statement-meme-coins

13. SEC, “SEC Announces Dismissal of Civil Enforcement Action Against Coinbase,” February 27, 2025. https://www.sec.gov/newsroom/press-releases/2025-47

14. Caroline Crenshaw, Remarks at the Investment Company Institute’s 2025 Investment Management Conference, March 26, 2025. https://corpgov.law.harvard.edu/2025/03/26/remarks-by-commissioner-crenshaw-at-the-investmentcompany-institutes-2025-investment-management-conference/

15. Caroline Crenshaw, Remarks at the Investment Company Institute’s 2025 Investment Management Conference, March 26, 2025. https://corpgov.law.harvard.edu/2025/03/26/remarks-by-commissioner-crenshaw-at-the-investmentcompany-institutes-2025-investment-management-conference/

16. SEC, “SEC Enhances the Regulation of Private Fund Advisers,” August 23, 2023. https://www.sec.gov/newsroom/press-releases/2023-155

17. United States Court of Appeals for the Fifth Circuit, “National Association of Private Fund Managers et al. v. Securities and Exchange Commission,” June 5, 2024. https://www.govinfo.gov/content/pkg/USCOURTS-ca5-23-60471/pdf/USCOURTS-ca5-23-60471-0.pdf

18. American Federation of Teachers, Americans for Financial Reform Education Fund, and American Association of University Professors, “From Public Pensions to Private Fortunes: How Working People’s Retirements Line Billionaire Pockets,” July 2025. https://ourfinancialsecurity.org/resources/publicpensionsprivatefortunes; Stephen Deane, “Private Markets: Governance Issues Rise to the Fore,” CFA Institute Research and Policy Center, June 2024. https://rpc.cfainstitute.org/sites/default/files/-/media/documents/survey/private-markets-governanceissues-rise-to-the-fore.pdf; Alexander Ljungqvist, “The Economics of Private Equity: A Critical Review,” CFA Institute Research Foundation Literature Review, 2024. https://rpc.cfainstitute.org/sites/default/files/-/media/documents/article/rf-brief/economics-of-private-equity.pdf.

19. Holger Spamann, Indirect Investor Protection: The Investment Ecosystem and Its Legal Underpinnings, Journal of Legal Analysis, Volume 14, Issue 1, 2022, Pages 17–79, https://doi.org/10.1093/jla/laac003

20. Jeffrey Hooke and Michael Imerman, comment on proposed regulation RIN 1210 AC 20, April 13, 2026. https://www.regulations.gov/comment/EBSA-2026-0166-6564

21. Jeffrey Ptak, “Look Before You Leap When Investing in Private Funds,” Morningstar, July 29, 2025. https://www.morningstar.com/funds/look-before-you-leap-when-investing-private-funds; Linge Sun and Nicholas Reade, “Performance Dispersion in Alternative Asset Classes, CAIS, November 18, 2022. https://www.caisgroup.com/articles/performance-dispersion-in-alternative-asset-classes

22. Stephen Deane and Olivier Fines, “Cryptoassets: Beyond the Hype,” CFA Institute, January 2023. https://rpc.cfainstitute.org/sites/default/files/-/media/documents/article/industry-research/crypto-beyondthe-hype.pdf

23. SEC, “Staff Statement on Meme Coins,” February 27, 2025. https://www.sec.gov/newsroom/speechesstatements/staff-statement-meme-coins

24. Internal Revenue Service, “Retirement topics – Plan assets,” web page accessed May 25, 2026. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-plan-assets

25. In 2023, the Treasury Department and Internal Revenue Service (IRS) announced that they planned to issue guidance relating to the treatment of nonfungible tokens as collectibles. IRS, “Treatment of certain nonfungible tokens as collectibles,” Notice 2023-27, March 21, 2023. https://www.irs.gov/pub/irs-drop/n-23-27.pdf; David Block and Davide Levine, “IRS Announces Intention to Issue Guidance on NFTs,” Groom Law Group, March 29, 2023. https://www.groom.com/resources/irs-announces-intention-to-issue-guidance-onnfts/

26. Sharon LaFraniere and David Yaffe-Bellany, “How Prediction Markets and Crypto Firms Steamrolled a Watchdog Agency,” The New York Times, May 24, 2026. https://www.nytimes.com/2026/05/24/us/howprediction-markets-and-crypto-firms-steamrolled-a-watchdog-agency.html

27. Ludovic Phalippou, “An Inconvenient Fact: Private Equity Returns & The Billionaire Factory,” University of Oxford, Said Business School, Working Paper, June 10, 202. https://dx.doi.org/10.2139/ssrn.3623820; American Federation of Teachers et al., op. cit. July 2025.

28. Robert S. Harris, Tim Jenkinson, Steven N. Kaplan, and Ruediger Stucke, “Has Persistence Persisted in Private Equity? Evidence from Buyout and Venture Capital Funds,” Journal of Corporate Finance, Volume 81, August 2023. https://doi.org/10.1016/j.jcorpfin.2023.102361.

29. American Federation of Teachers et al., op. cit. 2025; Dan Chung and Brad Neuman, “Debunking Private Equity Prestige,” Alger Insights, April 2024. https://www.alger.com/Pages/Content.aspx?pageLabel=Insights-Commentary-Debunking-Private-Equity-Prestige

30. Jean-Pierre Aubry, “Public Pension Investment Update: Have Alternatives Helped or Hurt?” Center for Retirement Research at Boston College Issue in Brief 22-20, November 22, 2022. https://crr.bc.edu/publicpension-investment-update-have-alternatives-helped-or-hurt/

31. Jean-François L’Her, Rossitsa Stoyanova, Kathryn Shaw, William Scott, and Charissa Lai, “A Bottom-Up Approach to the Risk-Adjusted Performance of the Buyout Fund Market,” Financial Analysts Journal, 72(4), 36–48, December 27, 2018. https://doi.org/10.2469/faj.v72.n4.1https://www.tandfonline.com/doi/abs/10.2469/faj.v72.n4.1

32. Angela M. Antonelli, “Has the Lack of Asset Diversification in DC Retirement Plans Been a Costly Missed Opportunity?” Georgetown University Center for Retirement Initiatives in Conjunction with CEM Benchmarking, June 2023. https://cri.georgetown.edu/wp-content/uploads/2023/06/GeorgetownCRI-CEm- Benchmarking_Lack-of-Asset-Diversification-CRI-paper.pdf

33. SEC, op. cit., August 23, 2023.

34. U.S. Court of Appeals for the Fifth Circuit, op. cit., June 5, 2024.

35. James Van Bramer, “Unpacking the DOL ‘Safe Harbor’ for Alternative Investments,” Plan Advisor, April 14, 2026. https://www.planadviser.com/unpacking-the-dol-safe-harbor-for-alternative-investments/

36. Amy C. Arnott, Christine Benz, David Reyna, and Jack Shannon, “2026 Diversification Landscape,” Morningstar, April 14, 2026. https://www.morningstar.com/content/csassets/v3/assets/blt9415ea4cc4157833/blta0fddf23ec4df239/69ddb33e160be843c15e5ad3/Diversification_Landscape_2026.pdf

37. United States, Executive Office of the President. Executive Order 14330: Democratizing Access to Alternative Assets for 401(k) Investors, August 7, 2025. https://www.whitehouse.gov/presidentialactions/2025/08/democratizing-access-to-alternative-assets-for-401k-investors/

38. Amy C. Arnott, “Sequence of Returns: What It Means and How to Deal,” Morningstar, August 9, 2021. https://www.morningstar.com/retirement/sequence-returns-what-it-means-how-deal

39. EBSA, “FAQs about Retirement Plans and ERISA,” web page accessed May 25, 2026. https://www.dol.gov/agencies/ebsa/about-ebsa/our-activities/resource-center/faqs/retirement-plans-anderisa

40. SEC Office of the Advocate for Small Business Capital Formation, Annual Report 2024. https://www.sec.gov/files/2024-oasb-annual-report-print.pdf

41. Eileen Appelbaum and Rosemary Batt, Private Equity at Work, The Russell Sage Foundation, May 2014. https://www.russellsage.org/publications/book/private-equity-work

42. Andrew Ross Sorkin, “The Rules of Investing Are Being Loosened. Could It Lead to the Next 1929?” The New York Times, October 13, 2025. https://www.nytimes.com/2025/10/13/magazine/investing-private-equitycrypto-crash-1929.html

43. William A. Birdthistle, “Trump Is Pushing Us Toward a Crash. It Could Be 1929 All Over Again,” The New York Times, November 7, 2025. https://www.nytimes.com/2025/11/07/opinion/donald-trump-great-gatsbyroating-20s-sec.html

44. Maureen Farrell, “New Limits on Investors and a Debt Downgrade Add to Private Credit Woes,” The New York Times, March 24, 2026. https://www.nytimes.com/2026/03/24/business/moodys-private-creditdowngrade.html

45. Bryan Miller, “Americans Have Little Interest in Adding Private Market Investments and Cryptocurrency to Workplace Retirement Accounts,” AARP, November 20, 2025. https://www.aarp.org/pri/topics/work-financesretirement/financial-security-retirement/private-market-and-cryptocurrency-investments/

In an executive order dated August 7, 2025, President Trump called for a reexamination of regulations and guidance for retirement plans. Trump asked regulators to encourage retirement plan administrators to include risky options like alternative assets (or “alts”) in 401(k) and similar retirement plans. Alternative assets could be funds invested in private equity and cryptocurrencies, assets that lack strict regulation and whose value and risk can be hard to assess compared with other types of investments. Because of this, many consider alts to be unsuitable for retirement plans. Trump’s executive order listed direct and indirect interests in private market investments, real estate, digital assets, commodities, infrastructure, and longevity risk-sharing pools.

Currently there are no explicit bans on offering these types of investments in participant-directed retirement plans, but employers and advisers who serve as retirement plan fiduciaries can be sued for including inappropriately risky and costly assets among investment options. (Fiduciaries are required by law to act in the best interests of retirement plan participants.) Outside of retirement plans, marketing private equity and other largely unregulated alternative assets to small investors is mostly prohibited by securities laws, regulations, and agency guidance—though cryptocurrencies and other digital assets can be sold to anyone.

Whether due to fiduciaries’ litigation fear or common sense, alts like private equity have so far made little headway in the 401(k) space, though some major players began marketing managed funds with alternative asset components to 401(k) plan sponsors even before Trump issued his executive order.

“Scrapping the cap” is a popular and effective way to address Social Security’s funding gap. Nearly three-fourths of Social Security’s projected long-term shortfall would be eliminated if the cap were scrapped without increasing benefits.

But wouldn’t such a move be opposed by high earners? The answer isn’t as obvious as you might think, because most workers with earnings above the cap stand to lose more from benefit cuts than from higher taxes. If nothing is done to shore up Social Security’s finances, EPI estimates that 70% of workers aged 32–66 who earned more than the taxable maximum in 2024 would lose more in benefit cuts than they would pay in higher taxes if the cap were scrapped.

The remaining 30% of these high earners, would, however, be better off losing 22.4% of their benefits beginning in 2034 than paying Social Security taxes on earnings above the cap. Unfortunately, this group includes politically influential multi-millionaires and billionaires.

Figure A

Figure A shows the break-even line below which workers are better off paying taxes on earnings above the cap than experiencing benefit cuts sufficient to eliminate the projected shortfall. For example, if the cap were eliminated, a worker who was 35 years old and earned below $236,000 in 2024 would pay taxes on earnings above the cap through age 66, but the value of these additional taxes would be lower than the value of forgone benefits if these were reduced by 22.4% (the amount necessary to restore the system to long-term balance).

Ultimately, most high earners stand to lose more from potential Social Security benefit cuts than from paying taxes on earnings above the cap. Scrapping the cap remains the most fair and practical path to safeguarding Social Security for future generations.

It is often underrecognized how much population aging is currently reducing the growth rate of the U.S. labor force and will continue to pull it down in coming decades. The share of the population that is over the age of 65 (when labor force participation tends to take a steep fall on average) is rising rapidly. This share was 12.4% in 2007, 17.9% in 2024, and will hit 21.2% by 2035 (CBO 2025b). A recent EPI report (Gould et al. 2025) assessed trends in U.S. labor force participation and reviewed the research literature about their drivers and the potential effects of policy changes on these trends. One upshot of this research literature is that even the most ambitious policies to boost the labor force participation rate of the current U.S. workforce would not materially change these trends.

Any decline in labor force growth necessarily leads to a decline in the rate of growth of gross domestic product (GDP). GDP is the product of the number of hours worked in an economy multiplied by productivity (the average amount of output generated in an hour of work). If the number of work hours falls because the labor force shrinks, this essentially translates one-for-one into slower aggregate growth. Policymakers who do not want to see the pace of GDP growth shrink relative to the past history of U.S. growth really only have one option: allowing larger flows of immigration. Absent this, other policies to boost the U.S. labor force—while they might be wise along many margins—will not restore overall GDP growth to anywhere near its historic pace. In the rest of this policy brief, we lay out some of the larger trends in U.S. labor force growth and the implications of population aging for the future path of the labor force and economic growth.

U.S. labor force growth has slowed a lot in recent decades, and U.S.-Born labor force growth has slowed even more

Figure A shows the average annual growth rate of the overall labor force for a number of historical periods. We pick endpoints for these periods that correspond with business cycle peaks to make sure that sharp cyclical differences are not driving these trends. For two recent periods (2007–2019 and 2019–2024), we also show the average annual growth of just the U.S.-born labor force.

Between 1948 and 1979, labor force growth averaged 1.8% annually. From 1979 to 2007, this pace slowed, but only slightly, averaging 1.4% annually. However, in the two business cycles since 2007, labor force growth averaged just 0.5%–0.6% annual growth. For the two most recent business cycles, we have data on growth in the U.S.-born labor force, and this growth is just 0.3% on average.

Figure A

The fast growth of the labor force between 1948 and 2007 and the slowdown since then can be explained by three big demographic changes: the Baby Boom that saw high fertility rates from the late 1940s to the mid-1960s and then a sharply lower fertility rate since, the steady influx of women into the labor force from 1948 until roughly 2000, and population aging that has seen the share of the over-65 population rise rapidly since 2007. The importance of population aging in driving the much slower labor force growth since 2007 can be seen in many exhibits presented in our previous report (Gould et al. 2025), which highlighted the labor force participation rate of prime-age workers—those between the ages of 25–54. These prime-age participation rates stood at near all-time highs in 2024, meaning that the decline in the labor force was not driven by falling age-adjusted participation rates, but was instead just driven by aging.

Population aging of U.S.-Born workers will accelerate in the next decade

Figure A highlighted that growth in the U.S.-born labor force was even slower than overall labor force growth after 2007. This makes sense given that immigrants tend to be younger than the U.S.-born population and that steady flows of net immigration buoy the U.S. labor force. The drag on overall labor force growth stemming from sharp declines in the U.S.-born labor force over the next decade will likely be quite steep.

The Congressional Budget Office (CBO 2025a) forecasts growth in the overall labor force and GDP for the U.S. economy over the next decade. They are currently projecting annual labor force growth of 0.5% on average between 2025 and 2035. Yet in demographic projections, the CBO (2025b) forecasts that immigration will account for essentially 100% of total U.S. population growth over this time span, and well over 100% of population growth after 2031. Given that 75%–80% of immigration flows are people between the ages of 20 to 64, this means that the U.S.-born population of those between the ages of 20 and 64—the vast bulk of the potential labor force—is forecast to shrink in every year for the next decade.

Figure B highlights this, showing estimates of the population between the ages of 20 and 64 for the years between 2025 and 2035.1 We show the baseline growth of this population, but then also estimate what growth would be if net immigration were halved or were driven by zero (see the data appendix for explanations of how these were calculated). The line showing zero net immigration essentially is the path of labor force growth of just the U.S.-born population.

Figure B

Reduction of net immigration flows would lead to much slower labor force and GDP growth

If we assume that any changes in population levels do not change labor force participation rates, we can make a rough inference about how much any change in immigration levels would affect trends in labor force and GDP growth in the coming decade. (Some more details on this calculation are in the data appendix.)

Figure C shows current forecasts for growth in real (inflation-adjusted) GDP from the CBO and from the Trump administration’s Office of Management and Budget (OMB). The OMB is forecasting far faster growth than the CBO over the next decade. This is true even as the CBO is still projecting immigration flows over the next decade that will be high enough to account for over 100% of U.S. population growth post-2030.

Figure C

Because GDP is simply the product of hours worked and productivity, the Trump administration would have to be forecasting either significantly faster growth in hours worked (proxied by the size of the labor force) or significantly faster productivity growth. But the potential growth of hours worked by U.S.-born workers is essentially driven entirely by demographic trends. Again, Gould et al. (2025) highlight that there is very little scope for even the most ambitious policy efforts to boost labor force participation rates of the current U.S. workforce to raise these by more than a percentage point or two. And even these ambitious and most effective policy changes largely involve substantial investments in today’s children to make them more likely to search for work as adults. This means that the payoff period is well over a decade.

Given this limited scope for policy to boost labor force participation rates, the only other margin along which the labor force could grow is immigration. But the Trump administration is clearly looking to shrink, not expand, net immigration flows. Given this stated policy preference, we also calculate what halving net immigration flows or reducing them to zero would do to CBO’s growth forecasts (for details on how we estimated these, see the data appendix). Very roughly, a halving of net immigration would reduce average annual GDP growth by 0.2 percentage points annually in the coming decade, while reducing net immigration to zero would reduce annual growth by 0.4 percentage points annually.

All of the discussion above implies that the Trump administration forecasts could only be met by faster productivity growth. Figure D shows the implied productivity growth assumptions adopted by the Trump administration versus the CBO. It then shows the implied productivity growth rates for the Trump administration forecast to hold in scenarios in which net immigration flows were halved or driven to zero. It is worth noting that the stated position of the Trump administration to increase deportations to 1 million per year would be (all else equal) roughly consistent with a halving of net immigration flows if these flows returned to pre-2022 levels.2 Finally, Figure D shows the historic average and maximum 10-year productivity growth rates from each full business cycle since 1969.

Figure D

Even the unadjusted forecasts of CBO and the Trump administration imply large differences in productivity assumptions—with the administration assuming productivity growth that is a full percentage point faster (or roughly double the pace) of CBO’s forecasts. For the Trump administration GDP forecasts to hold even in the face of reductions in net immigration flows, the assumptions regarding the pace of productivity growth would have to further increase. In a scenario of zero net immigration, for example, productivity growth would have to reach 2.9% annually to meet the administration’s GDP forecasts. For context, no full business cycle since 1969 has seen productivity growth even close to this fast. The previous maximum was the 2.4% productivity growth that characterized the 2000–2007 business cycle. On average since 1969, productivity growth over full business cycles has averaged just 1.7%. In short, meeting the OMB growth forecasts will be hard enough given current trends in net immigration. If there is any reduction in these trends, productivity growth would have to accelerate to levels not seen in decades.

Conclusion

The pace of overall GDP growth rises and falls essentially one-for-one with the pace of labor force growth. For the next decade, the labor force of the U.S.-born population will likely fall each year. To be clear, this does not necessarily imply great economic hardship. It is the level of GDP per capita that determines a country’s living standards, not its level of overall GDP. (This fact is why, for example, Denmark is considered a very rich country, while Bangladesh is not, despite the latter having an overall GDP that is more than three times as large).

But there are reasons besides its mechanical connection with overall GDP growth for a country to want the labor force to grow steadily. One reason is that a rising ratio of nonworkers to workers can make some social insurance systems (like those that provide retirement income or health care to older workers) more challenging to maintain. Given the value of these systems to the nation’s welfare, anything that makes them easier to sustain would be welcome.

Finally, any policymaker wanting to make large claims about the pace of overall GDP growth that will occur under their watch is obligated to make them consistent with basic facts about labor force growth, potential productivity growth, and the potential effect of policy on each of these. The degree to which labor force growth over the next decade in the U.S. will be quite slow relative to the historic past, and the pretty low possibility that even ambitious policy changes outside of immigration policy can change this is important information in this context.

Data appendix

Figure B

CBO (2025b) provides estimates for growth in the 20–64 population and net immigration overall. The background data included in that report also provide net immigration forecasts each year by age (along with sex and immigration status). Given this, we construct estimates of how much growth in the overall 20–64 population will be driven by net immigration. We then take forecasts of net immigration flows and cut them in half or force them to zero to assess the effect of this in growth of the 20–64-year-old population.

Figure C

GDP growth forecasts in the top two bars are obtained directly from CBO (2025a) and OMB (2025). To obtain the estimate in the bar titled “CBO with net immigration halved,” we make a calculation of how much halving projected net immigration flows would affect labor force growth in coming years. The calculated percentage change in the labor force would, in turn, then change GDP growth one-for-one. We build off the decline in the 20-64 population we estimated above. Because more than 90% of the labor force in any year is accounted for by people between the ages of 20 and 64, we multiply the change in the 20–64-year-old population by 90% to get a sense of how much changes in this population translate into changes in the overall labor force. This calculation implicitly assumes that changes in population do not have any effect on labor force participation rates. For example, if a population changes by 100, and the labor force participation rate of that population is (say) 80%, then the labor force will change by 80.

For the last bar in the figure, we do the same exercise, but this time assuming that net immigration is zero, not just halved.

Figure D

The bar titled “implied OMB forecast given GDP projections” assumes that CBO and OMB use the same forecasts for labor force growth. Given this, the difference in their GDP forecasts must equal the difference in their productivity forecasts. If the OMB ever clarifies just how they obtained their GDP forecasts, we can modify these calculations accordingly. Given the stated intent of the Trump administration to reduce net immigration flows and given the findings in Gould et al. (2025), it seems hard to see how the OMB could justify faster labor force growth forecasts.

For the bar in Figure D titled “necessary productivity growth to hit OMB GDP projection if net immigration was halved,” we use our previous estimate of how much a halving of projected net immigration flows would affect labor force growth and measure the difference between the OMB GDP projection and the CBO GDP forecast that would hold if labor force growth were reduced by a halving of net immigration inflows. For the next bar, we do the same exercise but use the estimate above for how much labor force and GDP growth would be held back by net immigration falling to zero.

Acknowledgments

The author thanks Joe Fast for research assistance and Grace Park for editing. This project was made possible by financial support from the Peter G. Peterson Foundation.

Notes

1. We use this age range because it is the one provided by the CBO 2025b that is most relevant to potential growth in the labor force in the coming decade.

2. Zipperer (2025) notes that 1 million deportations would be an increase of roughly 670,000 over previous baseline levels. CBO 2025b forecasts that net immigration flows will average 1.2 million between 2025 and 2035. Importantly, this estimate was made before the large increase in resources for immigration enforcement made possible by the passage of the Republican-led budget bill that Trump signed into law in July 2025.

References

Bureau of Economic Analysis (BEA). 2025. “National Income and Product Accounts Table 1.1.6.” Accessed September 2025.

Bureau of Labor Statistics (BLS). 2025a. “Online Labor Force Statistics Database, Current Population Survey.” Accessed September 2025.

Bureau of Labor Statistics (BLS). 2025b. “Total Economy Hours and Employment Spreadsheet” [Excel file]. Accessed September 2025.

Congressional Budget Office (CBO). 2025a. The Budget and Economic Outlook: 2025 to 2035. January 17, 2025.

Congressional Budget Office (CBO). 2025b. The Demographic Outlook: 2025 to 2055. January 13, 2025.

Gould, Elise, Sarah Jane Glynn, Hilary Wething, and Josh Bivens. 2025. Good News and Bad News About U.S. Labor Force Participation: Many Headwinds from the 2010s Are Gone, but We’re Not Investing Enough in the Future. Economic Policy Institute, September 2025.

Office of Management and Budget (OMB). 2025. FY 2026 Mid-Session Review of the President’s Budget.

Zipperer, Ben. 2025. Trump’s Deportation Agenda Will Destroy Millions of Jobs: Both Immigrant and U.S.-Born Workers Would Suffer Job Losses, Particularly in Construction and Child Care. Economic Policy Institute, July 2025.

Leland Dudek
Acting Commissioner
Social Security Administration
6401 Security Boulevard

Tasha Harley
Acting Reports Clearance Officer
Social Security Administration

Submitted via http://www.regulations.gov

Re: Agency Information Collection Activities: New Emergency Request No. SSA-2025-0014

Dear Acting Commissioner Dudek:

I write to submit this comment on behalf of the Economic Policy Institute. The Economic Policy Institute (EPI) is a nonprofit, nonpartisan think tank working for the last 30 years to counter rising inequality. We intentionally center low- and middle-income working families in economic policy discussions at the federal, state, and local level.

Thank you for the opportunity to comment on this proposal.

The new identity-proofing policy implemented by the Social Security Administration imposes a significant burden on claimants who have difficulty accessing or navigating the internet.

Last month, bypassing the normal review process under the pretext of an emergency, the Social Security Administration (SSA) implemented a new policy to increase the level of identity proofing needed for beneficiaries to make payment method changes by phone, including changing bank accounts used for the direct deposits. Specifically, SSA began requiring beneficiaries requesting these changes to open mySocialSecurity accounts online in order to generate new Security Authentication PINs (SAPs).

Internet-savvy beneficiaries already have the option of using SSA’s online portal. This change will therefore primarily affect beneficiaries for whom the new requirement is at best an inconvenience and at worst a major obstacle to accessing benefits in a timely manner. Many beneficiaries lacking internet access or digital proficiency will be forced to make in-person visits to SSA field offices to process what until now had been straightforward phone transactions.

Many beneficiaries will be forced to travel to distant and understaffed field offices.

Many elderly and disabled beneficiaries have mobility issues that can make visiting field offices a major challenge, especially given current long wait times simply to schedule an appointment. The Center on Budget and Policy Priorities has documented that millions of beneficiaries live 45 miles or farther from the nearest field office, 1 and field offices have been overwhelmed by worried claimants after staffing cuts and other harmful actions taken by this administration 2 caused long delays and service interruptions.3 Requiring millions more beneficiaries to schedule in-person visits only exacerbates an already dire situation.

SSA asserts the need to implement the new policy on an emergency basis without providing evidence of large-scale fraud.

The April 25, 2025 “Emergency Justification Letter” from SSA Deputy Commissioner Dustin S. Brown to Jeffrey Clark, Acting Administrator of the Office of Information and Regulatory Affairs at the Office of Management and Budget, does not provide any evidence of an emergency that would justify the immediate implementation of the new regulation.

The letter does not establish that fraud is a significant or growing problem, simply stating that “about 42% of all direct deposit fraud is phone-based.” However, if more than 42% of direct deposit changes are processed by phone, this statistic would suggest that phone transactions are relatively safe. In fact, the available evidence from SSA suggests that direct deposit fraud is extremely rare, on the order of $100 million a year, a tiny fraction of the roughly $1.6 trillion 4 SSA pays out annually in benefits 5. 

SSA has protocols for establishing a caller’s identity over the phone. Prior to recent actions taken by this administration, the agency also had an excellent track record of protecting personally identifiable information (PII), including bank account information required for the direct deposit of benefits.

The potential for fraud is undoubtedly greater since the administration gave improperly vetted members of the Department of Government Efficiency (DOGE) unrestricted access to PII.6 There is now a legitimate concern that DOGE actions could cause PII to be leaked 7 or used for purposes not intended by Congress, such as identifying immigrants 8. However, the way to address this very real risk is to restore longstanding protocols for restricting internal access to PII in Social Security databases, not forcing millions of elderly and disabled beneficiaries to travel long distances to overwhelmed field offices in order to process simple transactions.

We urge you to withdraw this policy and avoid putting additional economic and administrative burdens on seniors, people with disabilities, and other claimants.

Sincerely,
Monique Morrissey
Senior Economist
Economic Policy Institute

1. Kathleen Romig, Abruptly Eliminating Social Security Phone Services Threatens Access to Benefits, Center on Budget and Policy Priorities, April 8, 2025.

2. Consortium of Constituents with Disabilities, letter to Senate Finance Committee, March 20, 2025

3. Lisa Rein and Hannah Natanson, “Long waits, waves of calls, website crashes: Social Security is breaking down,” Washington Post, March 25, 2025

4. Social Security Administration (SSA). 2025. “Social Security Fact Sheet.”

5. Emily Peck, “DOGE Social Security plan targets small fraud at possible high cost,” Axios, March 20, 2025.

6. Lisa Rein, “Former Social Security official describes hostile takeover by Musk team,” Washington Post, March 10, 2025.

7. Celine McNicholas and Ben Zipperer, Trump is enabling Musk and DOGE to flout conflicts of interest, Economic Policy Institute, May 7, 2025.

8. Hannah Natanson, Joseph Menn, Lisa Rein and Rachel Siegel, “DOGE aims to pool federal data, putting personal information at risk,” Washington Post, May 7, 2025

• DOGE announced plans to cut Social Security staff by 7,000 workers—12% of the workforce. The Trump administration also plans to shutter or shrink dozens of Social Security Administration offices around the country.

• Administrative costs are less than 1% of Social Security spending. Since almost all Social Security spending goes towards benefits, which are set by statute, gutting the agency won’t save money for participants.

• The only way that slashing the number of workers will save large sums money is by making it hard for people to access benefits they’ve earned. Such backdoor benefit cuts, and making a popular government program look bad, are the real goals behind DOGE attacks on Social Security.

What does the Social Security Administration (SSA) do?

Social Security staff perform critically important functions. In addition to managing Social Security’s retirement program, officially known as Old Age and Survivors Insurance, career civil servants at SSA manage Social Security Disability Insurance and Supplemental Security Income that provide benefits to people with disabilities and low-income seniors. SSA personnel also enroll people in Medicare on behalf of the Centers for Medicare and Medicaid Services and assist other agencies in administering a diverse array of programs, ranging from the Department of Agriculture’s food assistance program (SNAP) to Homeland Security’s E-Verify program. Social Security itself lifts more Americans out of poverty than any other government program, and the means-tested benefits SSA administers or assists with provide critical—if meager—assistance to millions of individuals and families living below or near the poverty line.

Social Security personnel protect a trove of personally identifiable information. Sensitive information stored in SSA databases includes not only Social Security numbers, but also detailed earnings, tax, banking, and medical records. Until DOGE entered SSA headquarters, this information was carefully protected, with limited access granted to specially trained employees only for specific purposes.

What is DOGE and what is it doing to federal agencies?

On his first day in office, President Trump signed an executive order establishing DOGE. DOGE is the reorganized and renamed version of an existing unit within the White House Office of Management and Budget (OMB) tasked with “modernizing Federal technology and software to maximize governmental efficiency and productivity.” Officially, it’s headed by a veteran of the U.S. Digital Service, the predecessor to DOGE. Unofficially, it’s run by billionaire Elon Musk, a special advisor to President Trump—a reality acknowledged by the judge who issued a temporary restraining order against DOGE actions at SSA.

Trump has given Musk free rein, allowing DOGE to implement drastic cutbacks at multiple agencies. Among other actions, DOGE has gutted the Department of Education and effectively dismantled the U.S. Agency for International Development (USAID), the U.S. Institute of Peace (USIP), and the Consumer Financial Protection Bureau (CFPB). These and other efforts have been met with court challenges.

Though DOGE is an arm of the White House budget office, it has infiltrated independent off-budget agencies. Many agencies targeted by DOGE, including USAID, USIP, and CFPB, are independent agencies intentionally set up to be insulated from White House control. In addition, two independent agencies targeted by DOGE, SSA and the United States Postal Service (USPS), are off-budget programs with dedicated funding. Though OMB has no jurisdiction over these agencies, the heads of SSA and USPS were forced out after resisting DOGE incursions.

DOGE has demanded access to highly sensitive data. At many agencies, including SSA, the Office of Personnel Management, and the Departments of Treasury, Education, and Labor, DOGE programmers have accessed personally identifiable information such as Social Security numbers. In the case of SSA and many others, judges have ruled in favor of plaintiffs who would be harmed by data breaches. Nevertheless, DOGE continues to demand access to sensitive data at multiple agencies, including most recently gaining the ability to read and even possibly alter payroll data for hundreds of thousands of federal workers at the Department of the Interior.

What is DOGE doing at SSA?

A team of DOGE programmers installed themselves behind closed doors at SSA headquarters. The DOGE team at SSA, one of the largest, embarked on what a former chief of staff described as a “hostile takeover,” with an armed guard posted outside their office. When the inexperienced and improperly vetted DOGE team demanded unrestricted access to Social Security databases, the acting commissioner resigned in protest and was replaced by Leland Dudek, a mid-level manager who boasted on social media about circumventing SSA management to help DOGE. At least one DOGE associate accessed this data remotely from the Office of Personnel Management, the site of the most serious data breach in U.S. government history. A judge later issued a temporary restraining order limiting access to SSA data by DOGE associates.

SSA, under a new DOGE-friendly Acting Commissioner Leland Dudek, announced plans to reduce staffing by 7,000 employees through incentives and layoffs. This 12% reduction is a target—many more SSA employees could leave or be forced out. Cutbacks have affected all agency personnel, including critical and difficult-to-replace programmers and cybersecurity experts. Morale was already low at the agency before DOGE staff started bullying employees, threatening layoffs, and offering buyouts. Meanwhile, the DOGE-friendly acting commissioner has instituted hiring and overtime freezes and even threatened to shut down operations.

SSA was already stretched to the breaking point after years of underfunding. Even before the DOGE cuts, staffing at the agency was at a 50-year low. Meanwhile, more people are receiving Social Security benefits than ever before thanks to the aging Baby Boomer generation. Despite years of flat funding that failed to keep up with an escalating workload, House Republicans were gunning for cuts to Social Security’s administrative budget even before DOGE’s slash-and-burn efforts.

Social Security is at a breaking point. Former Commissioner Martin O’Malley has noted that not only has DOGE set the stage for a total collapse of the system, but this brain drain is being paid for by Social Security participants. Wait times for phone and in-person appointments have already skyrocketed, with half of callers hanging up before they have a chance to speak with anyone. The large number of people attempting to use the online portal crashed the system four times last month.

DOGE also announced plans to shutter or shrink Social Security Administration offices. This is part of a broader plan to terminate leases on thousands of federal offices around the country with the goal of reducing federal office space by half even as federal workers are being recalled back from remote work. These efforts have raised concerns that offices sold at fire-sale prices could be leased back later at a higher cost to taxpayers. SSA offices slated for closing include the Maryland headquarters, regional offices, and dozens of field offices that handle in-person appointments needed to process complex transactions.

DOGE actions increase costs even as service suffers. As former Commissioner O’Malley noted, SSA is now paying people not to work. DOGE has also reassigned high-level staff to fill staffing shortages in entry-level positions, such as answering calls to the 1-800 number. And since the Trump Administration announced office closings and lease terminations while it was recalling remote workers, SSA will likely end up leasing office space at a higher cost—perhaps from Trump insiders who bought the offices at fire-sale prices. The fact that DOGE has cut Internal Revenue Service staff tasked with rooting out tax evasion by large corporations and wealthy individuals makes clear that deficit reduction and preventing fraud are not its real goals.

Who is most affected by SSA cutbacks?

Wait times were too long even before DOGE, especially for accessing disability benefits. Disability determination is a complex process requiring copious documentation. As of February 2025, the process averaged 236 days for decisions issued in the initial stage and 277 days for cases that were appealed. Over a million people are waiting on an appeal, with tens of thousands dying while awaiting a decision. Delays will only get worse with staffing cuts.

Disabled claimants are particularly affected by field office closings. Social Security office closures exacerbate mobility and other barriers to accessing disability benefits. According to research published by the National Bureau of Economic Research, office closures lead to a 13% drop in the number of people receiving disability benefits in the affected area.

What is the rationale for the DOGE takeover of SSA?

Musk and others in the Trump Administration claim impossible cost savings. Musk and others in the Trump Administration have boasted that they’ll find ways to reduce spending by $500 billion or more from Social Security and other social insurance programs—a third of spending on these programs—without, somehow, cutting benefits.

Trump and Musk float outrageous fraud claims. Trump and Musk claim that Musk’s DOGE team found millions of people who were receiving benefits tied to the Social Security numbers of people born over a century ago. The truth is that inexperienced DOGE programmers misinterpreted missing-date codes on old records and assumed, without bothering to check, that millions of people were receiving benefits in the name of dead beneficiaries. When this embarrassing error was pointed out, Trump and Musk doubled down on their claims rather than admit they were wrong.

Fraud isn’t a serious problem at Social Security. Credible independent sources estimate improper payments to be less than 1% of SSA benefit payments, much of it due to errors and reporting delays, not fraud. The only widespread misuse of Social Security numbers—by undocumented workers—is helpful to Social Security’s finances because these workers contribute to the system with little chance of ever receiving benefits based on their contributions.

Should we be worried about Social Security?

Yes and no. DOGE attacks on the Social Security Administration have been extremely destructive, and some of the damage will be very difficult to reverse. However, Social Security has never missed a payment in its 89-year history, and it would be political suicide for the Trump Administration and Republican Party to allow this to happen under their watch. However, the Trump Administration, with DOGE’s help, is making it hard for people to claim benefits in the first place, harming participants and unfairly tarnishing Social Security’s reputation.

Social Security faces a long-term shortfall that would be easy to fix if Republican lawmakers listened to voters. Republican and Democratic voters alike support addressing the shortfall through revenue increases, not benefit cuts. Options for raising revenue include eliminating the cap on taxable earnings, so billionaires like Musk no longer contribute the same amount to Social Security as doctors and lawyers. Claims that Social Security is in crisis—and attempts to manufacture a crisis—serve to distract from this popular option.

The alleged rationale for putting an unelected billionaire and his team in charge of SSA and other government functions is rooting out waste. But Social Security’s administrative costs are tiny—less than 1% of spending—and improper payments are similarly inconsequential. Meanwhile, a top priority of the Trump Administration is extending tax cuts that overwhelmingly flow to wealthy people like Musk.

If it ain’t broke, DOGE will break it. As former Commissioner Martin O’Malley warned, “When they can break it, they can say, ‘Aha! We told you! This program never worked, and we were just ripping the band aid off.’” Massachusetts Senator Elizabeth Warren told Frank Bisignano, the self-described “DOGE person” who Trump has nominated to run the agency, that the only way to significantly reduce Social Security spending without Congress instituting unpopular benefit cuts is to make it very hard for people to access them. If this makes people frustrated with the agency, that’s a plus for an administration that wants you to believe that government is broken. 

Proponents of the Southern economic development model argue that it will create good jobs (Danney 2021; Ivey 2024). They claim that adopting most or all components of the model creates a business-friendly environment with low taxes, which will attract businesses (including major corporations) that will in turn provide an abundance of jobs. In theory, if jobs were abundant and/or growing faster than the population, competition among employers to attract and retain workers would lead them to raise pay, improve benefits (including health insurance and pensions), and find other ways to make these jobs more attractive.

However, Childers (2023; 2024b) finds that job growth across the South has not kept pace with growth in the working-age population. Further, she finds that the share of the prime-working-age population that was employed—the prime-age employment-to-population ratio—was lower across the South than in any other region of the country (Childers 2024b). This reflects many factors, including a lack of access to affordable childcare and reliable public transportation that helps workers get and keep jobs. It also reflects the fact that Southern states incarcerate their residents at very high rates, which translate into large numbers of Southerners with criminal histories. Finally, many available jobs are unattractive and do not provide workers with the income and benefits needed to support themselves or their families.

In this report we explicitly examine the argument that the Southern economic development model produces good jobs for workers across the region.1 The data show that wages and access to benefits such as health insurance and pensions in Southern states that embrace the Southern model lag those of workers in other regions that do not adopt any or most of the model’s components. The Southern economic development model does not—and cannot—lift all Southerners to economic security or prosperity.

Southern states consistently have the lowest wages of any region

Southern states have lower median wages than other regions

For over 40 years, the typical worker in the South has been paid less than their counterparts in every other region of the country. Figure A shows the median hourly wage for workers by region since 1979 in constant 2021 dollars. The median wage is the wage of the worker in the exact middle of the wage distribution: This worker is paid more than half the workforce and less than the other half.

In 1979, the median Southern worker was paid the equivalent of $16.42 per hour in 2021 dollars. This is 16.4% less per hour than their counterparts in the West, the region with the highest median wages in 1979. It was also 12.6% and 10.2% lower than the wages of workers in the Midwest and Northeast, respectively. Median wages have risen nationwide since 1979, with growth ranging from 12.1% in the Midwest, 12.4% in the West, 22% in the South, and 30.2% in the Northeast by 2021, as shown in Figure A.

Since the early 1980s, the Midwest has consistently had the second-lowest wages, but over time the gap between the South and the Midwest has somewhat closed; wages in the South were only 4.8% lower than Midwest wages in 2021. However, wages in the South have never been as high as those in other regions. They remained substantially lower in 2021, when they were 9.3% lower than wages in the West and 15.9% lower than wages in the Northeast—regions where most state governments have rejected the Southern economic development model. In fact, the gap between typical wages in the South and the Northeast in 2021 is roughly the same as the gap between the South and West in 1979—meaning that the Southern model has not afforded any advantage in pay to workers in the South relative to workers in other regions over the last 40 years. Instead, the Southern model has ensured that eight of the 10 lowest-wage states in 2021 were in the South: Arkansas, Kentucky, Louisiana, Mississippi, Oklahoma, South Carolina, Tennessee, and West Virginia.2

Figure A

Low-wage workers make up a larger share of the workforce across the South

While the median wage is an important indicator of the economic well-being of workers overall, it does not tell us how particular groups of workers are faring, such as the low-wage workforce. The low-wage workforce here is defined as workers that are paid less than $15 per hour. Figure B shows the share of workers that are paid less than $15 per hour in each region.

Figure B

The share of the workforce made up of low-wage workers has fallen nationwide since the COVID-19 recession. In 2019, before the pandemic, the share of workers in the South that were paid less than $15 per hour was 26%—more than one in four workers. This is a much higher share than other regions; in the Midwest, 22.2% of workers were part of the low-wage workforce, and fewer than one in five workers in the Northeast and West made up that share.

After the pandemic, a period when strong labor market conditions gave workers leverage to command a higher wage and many states were raising their minimum wages, the share of workers that were paid less than $15 per hour fell in all regions (Gould and deCourcy 2023). However, the smallest decline was in the South. The share of workers paid less than $15 per hour fell from 26% of workers to 22%, a decline of just four percentage points. There were much larger declines in the share of workers that were paid low wages in the Midwest (5.6 percentage points), the Northeast (5.9), and the West (7.8).

Figure C

Figure C shows the share of workers that are part of the low-wage workforce in each state (see also EPI 2024a). These data show that the differences between regions are not driven by a few outlier states. In several Southern states—Mississippi (29%), Louisiana (27%), Oklahoma (24%), Arkansas (23%), West Virginia (23%), and Alabama (22%)—the share of the workforce that is low wage is higher than that of the region as a whole (22%). Delaware (13%), Virginia (12%), and Maryland (9%), however, have the smallest low-wage workforces of all states across the South. Notably, although these states are part of the South Census Region, their state economic policies tend to be more in line with those of Northeastern and Western states.

Outside the South, New Mexico (21%) is the only state with more than one in five workers paid less than $15 per hour. In New Hampshire and North Dakota, just 9% of workers are low-wage workers. Even fewer workers receive such low pay in Alaska (6%), Colorado (7%), Minnesota (7%), and Vermont (7%).

Every state that lacks a state minimum wage is in the South

Many states with smaller low-wage workforces have accomplished this by raising their state minimum wage above the federal minimum wage, which has been stuck at $7.25 per hour since 2009. The value of the federal minimum wage has fallen such that it has less purchasing power today than it has had at any time since 1956 (Cooper, Hickey, and Zipperer 2022).

As federal policymakers have left the federal minimum wage to erode, policymakers in most states have raised their state minimum wages, as have lawmakers in nearly 60 cities and counties—raising pay for their state’s low-wage workers (EPI 2024b; Hickey 2023). The federal minimum wage is a floor for wages; workers generally must be paid at or above this rate.3 For example, in California, Connecticut, D.C., Maryland, Massachusetts, New Jersey, New York, and Washington, the minimum wage is $15 or higher, ensuring workers in these states are paid decent wages.

In Figure D, the data show that across the South, many states have chosen not to raise their state minimum wage above the federal minimum wage. One Southern state—Georgia—has a minimum wage lower than the federal minimum wage, while Kentucky, North Carolina, Oklahoma, and Texas have state minimum wages equal to the federal minimum wage. Five Southern states—Alabama, Louisiana, Mississippi, South Carolina, and Tennessee—have no state minimum wage at all. It is important to note that nationally, only these five states completely lack a state minimum wage.

Figure D

In addition to Maryland and D.C. that have minimum wages of $15 or higher, several other Southern states have minimum wages above the federal level but below $15. Not all were the result of actions by policymakers. The District of Columbia ($17), Maryland ($15), Delaware ($13.25), Virginia ($12), and West Virginia ($8.75) all have higher minimum wages as the result of legislation or a city council ordinance. In Florida ($12) and Arkansas ($11), higher minimum wages were the result of a ballot measure (EPI 2024b; FPI 2024; Hickey 2023).

It is also important to note that 19 states across the country have indexed their minimum wages for inflation, so that the minimum wages are adjusted each year to account for rises in inflation. Of these 19 states, only Florida, Virginia, and the District of Columbia are in the South (EPI 2024b).

These data illustrate the importance of state policies for the economic well-being of workers and their families. They also show the failure of the policies that make up the Southern economic development model. This model has failed to ensure that workers are paid enough to lift a family out of poverty, and has certainly failed to ensure workers’ economic security, especially in states with more than one in five workers paid less than $15 per hour. Even workers in the middle of the earnings distribution have been paid less than their counterparts in other regions over the last four decades.

Adjusting wages for differences in the cost of living still leaves workers across the South with lower earnings

The wage data presented thus far show that the Southern economic development model has not provided any real regional advantage to workers, with unremarkable growth in typical wages and a larger share of the workforce paid particularly low wages. Yet proponents of the Southern model argue that a lower cost of living in the South means that lower nominal wages still afford a higher quality of life. Alternatively, they argue that an abundance of jobs means there is more work to be had, and lower hourly wages might be offset by greater hours of work annually. Neither of these arguments has merit.

Figure E shows a map with the nominal median annual earnings and the median annual earnings adjusted for differences in the cost of living for all 50 states. Median 2022 earnings are adjusted using the regional purchasing power parity index from the Bureau of Economic Analysis (2023). This allows us to compare the real purchasing power of a typical workers’ annual pay across states, as if the overall cost of living (i.e., prices) were the same across the country.

Figure E

Figure E shows that adjusting for state-level differences in the cost of living has a substantial impact on our understanding of the purchasing power of workers in different states. States with extremely high costs of living such as New York, California, and Hawaii have lower relative earnings—i.e., the purchasing power of each of their dollars is lower—when we take the higher cost of living into account. The high costs of living in these states are typically driven by an inadequate housing supply, a problem less acute in Southern states, where an abundance of land and limited regulation of housing development has resulted in sprawling growth in and around many Southern cities. Thus, it is true that despite lower relative earnings in many Southern states, their dollars provide them with greater purchasing power than the nominal value of those dollars would suggest. Median annual earnings of $44,499 in Mississippi have about the same purchasing power as $54,040 in Maine or $53,811 in Arizona.

Even when state-level differences in the cost of living are considered, Southern states continue to have some of the lowest wages in the country. Only two Southern states—Maryland and Virginia—are among the 10 highest-earning states.4 And among the 10 states with the lowest cost-of-living-adjusted median earnings, half are Southern states. Of the Southern states with the lowest earnings, Florida has the lowest of all states, followed by Mississippi, Arkansas, South Carolina, and Oklahoma.

As for the arguments that the Southern economic development model will generate more jobs or that workers can work more hours to increase their earnings, neither of these claims are reflected in the data. Childers (2023; 2024b) showed that job growth across the South has not been able to keep up with growth in the working-age population since the early 2000s and only moved in tandem with population growth before the 2000s. This indicates that the Southern economic development model has failed to outperform other regions that did not adopt this model. Further, the share of the prime-age population (ages 25–54) that is employed is lower across the South than in other regions. For example, of the 10 states with the lowest prime-age employment-to-population ratio (EPOP), seven—Alabama, Arkansas, Kentucky, Louisiana, Mississippi, Oklahoma, and West Virginia—are Southern states (Childers 2024b). Finally, analysis of Current Population Survey data on the average number of family hours of work across states shows that Southern states tend to have fewer hours of work per family relative to states in other regions. In 2019, before the pandemic, six of the 10 states with the fewest numbers of work hours were in the South: Alabama, Arkansas, Louisiana, Mississippi, South Carolina, and West Virginia. Of the 10 states with the highest number of work hours, only Maryland is in the South (Appendix Table 2).

These data show that the Southern economic development model is not providing the promised benefits to workers and families across the South. What the model has done is to ensure lower wages for workers across the region. 

Employer-provided benefits

Although probably the most salient for most workers, earnings are just one component of job quality. Other crucial aspects of job quality are also influenced by, if not directly shaped by, the state and local political environment and policy choices. These include workers’ access to an employer-provided pension, coverage by employer-provided health insurance, access to paid leave, and ability to form unions.

Fewer and fewer workers have been covered by employer-provided health insurance over the last 30 years

The primary way that most working-age adults and their families receive health insurance is through employer-provided coverage (Keisler-Starkey and Bunch 2023). Figure F shows trends in the share of private-sector workers working at least 20 hours per week and 26 weeks per year who have employer-provided health insurance, starting in 1981. The dramatic decline in health insurance coverage across regions is quite striking, illustrating a decline in this measure of job quality overall.

Figure F

In 1981, 68.7% of working Americans had employer-provided health insurance. While rates were higher in the Northeast (71.7%) and Midwest (71.6%), they were slightly lower in the West (68%) and substantially lower in the South (64.5%). Over the following 30 years, however, far fewer workers were covered by employer-provided health insurance across all regions. Coverage nationally fell to 52.6% in 2019, but coverage rates in the West (52.5%) and the South (50.7%) remained lower than the national rate, and the rates in the Midwest (55%) and the Northeast (53.9%) remained higher. As Figure F shows, the differences among regions have declined, but workers in Southern states are consistently the least likely to have employer-provided health insurance coverage.

The share of workers with a pension is declining across regions, but workers across the South remain the least likely to have one

Historically, many jobs that were considered good jobs provided workers with a traditional pension. A traditional pension is often referred to as a defined benefit plan, because the benefit that the worker will receive is defined upon hire. Because pensions offer a guaranteed, stable income—unaffected by swings in the stock market—these plans provide workers with economic security after they retire. Pensions have long been considered one leg of the three-legged stool that is supposed to support workers in retirement. The remaining two legs are personal savings and social security (DeWitt 1996). Unfortunately, large segments of the working population are paid such low wages that they are unable to save any significant amount of money for retirement. Figure G shows that access to an employer-provided pension has also declined precipitously across all regions, but workers across the South have consistently been less likely than their counterparts in the Midwest and Northeast to receive a pension over the last 40 years, beginning in the early 1980s, when they were the absolute least likely of workers in any region.

In 1981, almost half of private-sector workers—48.9%—had a pension. The rates were higher in the Midwest (53.6%) and the Northeast (53.6%). They were lower in the West (45.5%) and the South (43.7%). By 2019 there had been a precipitous decline in the share of workers covered by a pension, leaving just 32.5% of workers in the country with a pension. There was a decline across all regions, resulting in 38.4% of workers in the Midwest, 33.8% in the Northeast, 31.1% in the West, and 29.4% in the South having a pension.

Figure G

These declines in pension coverage are occurring at a time when the share of the population 65 and older has been increasing. The South has the largest number of people aged 65 or older—21.1 million—compared with 12.6 million in the West, 11.9 million in the Midwest, and 10.2 million in the Northeast. The South (42%) and the West (46.9%) are also experiencing the fastest growth in their 65-and-older population, with somewhat slower growth in the Midwest (31.8%) and Northeast (30.7%) (Caplan and Rabe 2023). The growth of the 65-and-older population includes retirees who relocate to the South from other regions. Of the three states with an increase of over one million in the 65-and-older population between 2010 and 2020, two—Florida and Texas—are in the South (Caplan and Rabe 2023).5

While many of these workers may have access to a 401(k) plan, also known as a defined contribution plan, these plans are a far less reliable income source than the defined benefit pension. These plans are called defined contribution plans because it is the employer’s contribution to the plan that is determined at the beginning of the employment relationship—and the employer’s contribution can be $0—rather than defining the benefit the employee will receive, as with the defined benefit pension (Morrissey 2016). When employers do contribute to the plan, they will often only match the amount the employee contributes up to a specific percentage of the employee’s salary. According to National Association of Plan Advisors (2017), it is most common for employers to contribute up to 6% of an employee’s salary to their 401(k). If the employee’s earnings are too low to participate, the employer typically does not contribute. Also, unlike pensions, where the employer is responsible for ensuring workers receive a predictable stream of income in retirement, the 401(k) shifts responsibility for the investment decisions and the associated risks onto the worker. This shift ultimately means less economic security in retirement for many of today’s workers.

Workers across the South have less access to paid leave than their peers in other regions

Paid sick leave

Access to paid sick leave and paid family and medical leave are crucial indicators of job quality. Paid sick leave ensures that workers can take time off from work if they or a family member are sick, have an injury, or need to seek medical treatment. Because there are no federal laws guaranteeing paid sick leave, in states and localities that do not have laws requiring paid leave, employers decide whether workers will be paid. Unfortunately, low-wage workers are much less likely to be offered paid time off than workers in better-paying jobs (Gould and Wething 2023). Low-wage workers are also often the least likely to be able to afford to lose their wages. This means that many go to work when they are sick or send their children to school sick, endangering public health. For example, one survey found that seven in 10 women working in the fast-food industry had gone to work when they were sick—coughing, sneezing, with a fever, or vomiting­—because they did not have paid leave (National Partnership 2016). Thus, paid sick leave not only protects workers but it also protects the public by ensuring workers are not coming to work sick.6

Table 1

As of January 1, 2024, 15 states and the District of Columbia have passed paid sick leave laws (KFF 2023). Three states—Illinois, Maine, and Nevada—have more general paid leave laws that workers can use to take time off for illness or injury, but they are not limited to using them for these purposes (Illinois DOL n.d.; Williamson 2023). Across all these states, only Maryland and the District of Columbia are in the South.7 Table 1 shows data from one study of access to paid sick leave for states across the South.

The authors found that in all but three states that had a state paid sick leave law, more than 90% of workers had access to paid sick days. In contrast, in states that did not have a state paid sick leave law, access levels ranged from as low as 64.6% to 75.9%, with most state rates below 70%. Seven of the 10 states with the least access—Florida (34.9%), Oklahoma (33.6%), Tennessee (32.9%), Louisiana (32.8%), Arkansas (32.7%), South Carolina (32.7%), and Texas (32.6%)—were in the South (Mehta and Milli 2023). This amounts to millions of workers in states like Florida (3.4 million), Tennessee (1.1 million), and Texas (4.4 million) lacking access to a basic benefit (Mehta and Milli 2023).

In contrast to most Southern states, more than 90% of workers in the District of Columbia (94%) and Maryland (90.8%) had access to paid sick leave—they both have paid sick leave laws­. 

Paid family and medical leave

In addition to needing time off when they are sick, workers also often need extended time off to care for and bond with a new baby or when they or someone in their family have more serious medical needs. Good jobs ensure that workers can take the time they need. Unfortunately, the U.S. does not have a federal guarantee of paid family and medical leave for workers. What the U.S. does have is the Family and Medical Leave Act (FMLA), which provides unpaid, job-protected leave to “eligible” workers to care for a newborn or newly adopted child; a sick or injured child, spouse, or parent; or their own serious health issue. Unpaid, job-protected leave is also provided to family members of a spouse, parent, or child that is on “covered active duty” (DOL 2023).

The FMLA, signed into law in 1993, provides 12 weeks of leave in any 12-month period or 26 weeks for a spouse, child, parent, or next of kin caring for an injured servicemember (Gould 2019; Shabo 2024a).8 While this law is important, it has serious shortcomings. First, it is unpaid, which puts many low-wage workers in economic peril if they must take leave. If they simply cannot afford the lost income, they will not be able to properly care for themselves or their families.

The FMLA also excludes large swathes of workers; it just covers 56% of workers (Brown, Herr, Roy, and Klerman 2020; Gould 2019; Shabo 2024a). Workers can be found to be ineligible for FMLA coverage because they haven’t worked for the employer for at least 12 months; because they didn’t work 1,250 hours in the last 12 months for their current employer; or because they work at a location where the employer does not have at least 50 employees within 75 miles of the workplace (Brown, Herr, Roy, and Klerman 2020; DOL 2023). These exclusions create inequities in whose jobs are protect along the lines of income, race, ethnicity, and education (Brown, Herr, Roy, and Klerman 2020).

Increasingly, however, some states are stepping in to address some of the inadequacies of the FMLA. Nine states—California, Colorado, Connecticut, Massachusetts, New Jersey, New York, Oregon, Rhode Island, and Washington—and the District of Columbia currently provide workers with state paid family leave benefits (Shabo 2024a; Shabo 2024b). Of these, only the District of Columbia is in the South. An additional four states—Maryland, Delaware, Maine, and Minnesota—have enacted state paid family and medical leave laws that will provide benefits starting in 2026 (Shabo 2024b). Just two of these are in the South, and none of the Southern states with leave adopt the Southern economic development model.

Most state plans take a progressive approach, which replaces a larger share of low-wage worker’s wages than they do of high earner’s wages. For example, in California, low-wage workers will receive 90% of their typical earnings beginning in 2025 (Shabo 2024b). Today it is a 70% wage replacement rate for low-wage workers and 60% for other workers. This is not limited to California, however. Only Massachusetts (80%) and New Jersey (85%) have a wage replacement rate below 90% (Shabo 2024b).

Most state paid family and medical leave programs are also funded in a sustainable way with a small tax paid by the employer, employee, or a combination of both. This money goes into a public fund, which pays out the benefit to workers (Shabo 2024b; Williamson 2023). State paid family leave policies also embrace a broader definition of family that tends to include domestic partners (Shabo 2024b).

As noted, only three Southern states—Delaware, D.C., and Maryland—have or will have a state paid family and medical leave program by 2026. Six Southern states have taken a very different approach to providing paid family leave. Alabama (2023), Arkansas (2023), Florida (2023), Tennessee (2023), Texas (2023), and Virginia (2022) have adopted private insurance models of paid leave that allow private insurance companies to sell insurance policies to employers and/or to workers themselves to provide benefits while they are on leave (Shabo 2024b; Widiss 2023).9

This approach has been embraced by the insurance industry. The National Conference of Insurance Legislators adopted a paid family leave model law at their 2022 annual meeting. A press release touts the model law as providing “a framework for states to create a new line of insurance in which any insurer licensed to transact life insurance or disability income insurance will also be able to provide coverage for paid family leave” (Insurance News Net 2022).

Because these models have been enacted so recently, there is not much data on what they look like or how they will perform. Despite this, Shabo (2024b) found that the estimated costs in New Hampshire of using a similar model was overall more expensive than state paid family leave programs. Widiss (2023) highlights that this approach resembles the short-term disability model, a benefit that just 40% of all workers in the United States and 22% of low-wage workers in the country receive from their employers. Across the South, just 32% of workers receive this benefit (Widiss 2023). Further, Widiss points to the short-term disability policies replacing just 50%–60% of workers’ regular wages, a much lower replacement rate than state paid leave plans. The private insurance models for paid leave will therefore almost certainly provide less coverage, cover fewer workers, increase already large disparities in access, and will likely be more expensive (Widiss 2023).

Being able to take time off work for the birth of a new child, to provide care for a sick parent, or to support a disabled spouse without fearing job loss is crucial for all families. Knowing that you and your family will be protected from having an economic emergency on top of a physical illness or injury is just one of the most basic rights that all workers should have access to—independent of their race, education, income, region, or size of employer.

Southern state lawmakers have also disempowered local communities

Unionization rates are a key predictor of job quality and the overall economic well-being of Southerners

Finally, we examine union coverage rates across the South. A key component of the Southern economic development model is a zealous opposition to unionization or collective bargaining. The model’s proponents have sought to ensure as much as possible that workers are not empowered, which allows them to advertise their states as “business friendly.” Business friendly, in their minds, means low wages and few (if any) benefits for workers, and low taxes and few regulations for businesses.

When workers are able to join together in a union, they are empowered to improve their own economic status, even when politicians refuse to raise their state minimum wage or to ensure access to pensions or paid leave. Research has repeatedly shown that higher rates of unionization and union coverage are associated with higher wages; increased access to employer-provided health care, paid sick leave, and paid family and medical leave; smaller wage gaps by race and sex; better working conditions; and lower economic inequality, among other benefits (Banerjee et al. 2021; Freeman, Han, Madland, and Duke 2015; Frymer and Grumbach 2020; Mishel 2021; Mishel, Rhinehart, and Windham 2020).

Figure H shows union coverage rates by region. Union coverage rates are much lower across the South than in other regions of the country. While union coverage rates have generally declined across regions, rates across the South in 2021 (6%) are less than half that of the Midwest (12.6%), the region with the next-lowest rate. They are highest in the Northeast (17.9%) and the West (15%), regions that have higher median wages and a smaller share of workers being paid less than $15 per hour. States in the Northeast and West are also more likely to have paid sick leave laws and state paid family and medical leave programs. Union coverage rates across states are a clear indicator of job quality and of worker-friendly state-level policies.

Figure H

Figure I shows union coverage rates for individual states across the South in 2019 and 2023. As with the indicators above, in 2019 before the pandemic, Maryland (12.7%), Delaware (9.9%), and D.C. (10.2%) fared better than most Southern states in terms of having a larger share of their workers covered by a union. West Virginia (11.1%), however, has the second-highest union coverage rate. The lowest union coverage states are South Carolina (2.7%), North Carolina (3.4%), and Georgia (5%), with Virginia and Texas tied at 5.2%—compared with a national rate of 11.2% in 2023 (BLS 2024).

Figure I

Half of states across the South (seven of the 14 shown in Figure I) experienced a decline in union coverage following the pandemic. The largest declines were in Florida (-1.4 percentage points), Alabama (-1.2), and West Virginia (-1). These declines are not because workers do not favor unions; we have seen increased demands for unions from public school teachers and workers at Starbucks, Amazon, Google, Trader Joe’s, and many other private companies across the nation (De Vynck and Gurley 2022; Durbin 2023; Hsu 2022; Greenhouse 2023; Ingram 2023; Scheiber 2023). In fact, in the first half of 2022 alone, unions won 662 elections (Chernikoff 2023). In the first eight months of 2023, 323,000 workers walked off the job to demand improvements in pay, benefits, or working conditions (Chernikoff 2023). While nationally there has been little change in union coverage rates, there has been an increase in absolute numbers of workers joining unions (Shierholz, McNicholas, Poydock, and Sherer 2024). Notably, Figure I shows that since 2019, there were small increases in union coverage rates in several Southern states, with the largest increases in Kentucky (1.8 percentage points), Tennessee (1.4), and Mississippi (1.4).

Across the South, most states have passed so-called right-to-work laws, with the exceptions of Delaware, Maryland, and the District of Columbia. Right-to-work laws do not, in any way, guarantee workers will have access to a job if they want one. They simply make it harder for unions to be financially sustainable. Unions are legally required to protect and advocate on behalf of all workers at a company, not just union members. Because contract negotiations and legally representing workers—whether they are union members or not—can be expensive, in some states, private-sector unions can charge nonmembers a small agency fee to cover the costs of negotiating for them. In right-to-work states, unions are not allowed to collect this fee, effectively starving unions of resources (NCSL 2023).

And it is not only through right-to-work laws that politicians across the South and beyond oppose unions. Senator Mike Hodges introduced Senate Bill 362 in Georgia, a bill that would bar new businesses in Georgia from receiving state incentives if they voluntarily recognized a union based on a card check rather than a more costly election (R. Williams 2024; D. Williams 2024). Card checks are among the traditional and legal ways unions are recognized; when a majority of workers agree to sign authorization cards, they recognize the union as their bargaining representative (Eisenbrey 2009; 2012). Senator Jack Johnson sponsored a similar bill in Tennessee (Johnson 2023). Essentially, these bills attempt to penalize employers who want to respect workers’ right to join with their coworkers to collectively bargain for fair wages, good benefits, and safe working conditions.

Efforts to organize workers across the South have seen real pushback from governors—from Kay Ivey in Alabama referring to efforts to organize workers as an “attack” to Governor Kemp in Georgia putting his full support behind Senator Hodges’s bill and Governor McMaster of South Carolina vowing to “fight [unions] all the way to the gates of hell” to defeat “pro-union policies” in his state (Harris 2024; Ivey 2024; Kemp 2024).

In addition to right-to-work laws and the overall opposition from political leaders across the region, workers seeking to organize a union typically face intense opposition from employers. Companies spend $340 million dollars per year on consultants to help them prevent unionization among workers, and one in five unionization campaigns results in a charge that a worker was fired for trying to unionize (McNicholas et al. 2019). Further, because of the political opposition to unions, when workers try to organize, employers know that they can illegally intimidate them, refuse to recognize the union, or negotiate a contract in bad faith—with little to no fear of being held accountable by political leaders.

The fierceness of the opposition to unions, however, is perhaps one of the best indicators of the power of workers joining together to demand fair pay and fair treatment.

Preemption prevents local lawmakers from improving economic conditions for their constituents

In this report, we examined the evidence on job quality across the South and across the states within the South. We showed that workers in Southern states have worse job quality and are less likely to experience true economic security. While political leaders in many states across the South oppose policies that would empower workers, within these states, there are city and county officials who support higher minimum wages and access to pensions and paid leave for workers. A primary reason that many local jurisdictions across the South do not have these policies that support and empower workers in place is state-level preemption. Preemption is when state policymakers either block a local ordinance or dismantle an existing ordinance. States across the South with majority-white state legislatures have used preemption laws more than policymakers in states outside the South. They use preemption to block ordinances that would increase the economic security of people in localities where a majority of residents are people of color (Blair, Cooper, Wolfe, and Worker 2020).

Figure J shows a map of U.S. states and the number of policies that have been preempted at the state level. Across the South, local jurisdictions have been preempted from raising the minimum wage, providing paid leave, ensuring workers are given fair work schedules, or requiring contractors to pay workers the prevailing wage. Localities are not allowed to require project labor agreements, contracts that are unique to the construction industry and negotiated between labor unions and contractors laying out the terms and conditions of employment for construction projects. They also preempt the regulation of gig economy work­, such as driving for Uber or Lyft. These laws often prevent regulation that would treat these workers as employees and entitle them to all the accompanying rights and protections. Instead, localities require they be treated as independent contractors who are not entitled to the same protections.

Figure J

While the Southern economic development model emerged out of efforts of powerful interests—including politicians, plantation owners, and other employers—to continue extracting undervalued labor from Black men and women following the Civil War, the use of preemption across the South is a continuation of that process. All the data presented in Figure J show the efforts of state officials across the South to ensure wages are low and workers are economically insecure, and to ignore the needs of workers to care for their families. The harms caused by these policies are not limited to Black and brown Southerners; they hurt all workers and families across the region, although the greatest negative impacts continue to be on Black and brown Southerners.

Conclusion

To begin to work toward changing the Southern economic development model, it will be important for Southerners from all backgrounds—across race, ethnicity, gender, immigrant statuses, and income levels—to stand together and build the coalitions needed to demand policymakers create a new economic development model. Workers and families across the South deserve an economic model that centers and empowers workers and families, providing all workers with the wages and benefits that would ensure their economic security and allow them to sustain their families. This includes:

• raising the minimum wage to a living wage
• ensuring all workers have health insurance
• providing workers with a pension
• giving all workers access to paid leave, including paid sick days and paid family and medical leave

Finally, and perhaps most important, workers must be able to come together in a union to demand fair wages and benefits, a safe working environment, and the ability to have a say about their workplace—even when politicians are intransigent. This is a model that would serve the interests of all Southerners.

Notes

1. In this report, we use the U.S. Census Bureau’s definition of the South Census Region, which includes: Alabama, Arkansas, Delaware, Florida, Georgia, Kentucky, Louisiana, Maryland, Mississippi, North Carolina, Oklahoma, South Carolina, Tennessee, Texas, Virginia, West Virginia, and the District of Columbia. We note when analyses focus on a subset of these states.

2. For the median hourly wage for all states ranked from highest to lowest, see Appendix Table 1.

3. There are exceptions that allow some workers to be paid less than the $7.25 federal minimum wage. Some groups covered by these exceptions include tipped workers, workers with disabilities, some youth workers, and seasonal or agricultural workers. However, when a state law requires a higher minimum wage than federal law, the state law would apply (U.S. Department of Labor n.d.).

4. Data for the District of Columbia is not included in the ranking of states here because it is a city-state and the seat of the federal government, which artificially raises wages. If D.C. had been included, it would have been among the 10 highest-earning states.

5. The third state is California.

6. Typically, paid sick leave laws are structured so that workers earn time off based on how much they work. For example, a worker may earn one hour of paid sick leave for every 30 hours they work, up to a maximum number of earned hours (Mehta and Milli 2023).

7. States that have paid sick leave laws are: Arizona, California, Colorado, Connecticut, the District of Columbia, Maryland, Massachusetts, Minnesota, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, and Washington (National Partnership 2023). Some cities and counties have also passed paid sick leave laws, but only one—Montgomery County, Maryland—is in the South. This reflects the fact that state lawmakers across the South have used preemption to block city and county laws that would protect workers but that state lawmakers oppose (EPI 2024).

8. Military Caregiving Leave was not part of the original FMLA, but the FMLA was amended to add these provisions.

9. New Hampshire also provides paid family and medical leave through an insurance program that is required for public employers but is voluntary for private employers, who may purchase a plan for their employees, share the costs with employees, or require employees to purchase the plan to participate (Landroche n.d.; Shabo 2024a).

References

Banerjee, Asha, Margaret Poydock, Celine McNicholas, Ihna Mangundayao, and Ali Sait. 2021. Unions Are Not Only Good for Workers, They’re Good for Communities and for Democracy. Economic Policy Institute, December 2021.

Blair, Hunter, David Cooper, Julia Wolfe, and Jaimie Worker. 2020. Preempting Progress: State Interference in Local Policymaking Prevents People of Color, Women, and Low-Income Workers from Making Ends Meet in the South. Economic Policy Institute, September 2020.

Brown, Scott, Jane Herr, Radha Roy, and Jacob Alex Klerman. 2020. Employee and Worksite Perspectives of the FMLA: Who Is Eligible? Abt Associates, July 2020.

Bureau of Economic Analysis (BEA). 2023. “Real Personal Income for States and Metropolitan Areas.” U.S. Department of Commerce.

Bureau of Labor Statistics (BLS). 2024. “Union Members–2023” (news release). January 23, 2024.

Caplan, Zoe, and Megan Rabe. 2023. The Older Population: 2020 (2020 Census Brief). U.S. Census Bureau, May 2023.

Census Bureau. 2024. American Community Survey (ACS), Table S2001.

Chernikoff, Sara. 2023. “Here’s Why the U.S. Labor Movement Is so Popular but Union Membership Is Dwindling.” USA Today, September 7, 2023.

Childers, Chandra. 2023. Rooted in Racism and Economic Exploitation: The Failed Southern Economic Development Model. Economic Policy Institute, October 2023.

Childers, Chandra. 2024a. The Evolution of the Southern Economic Development Strategy. Economic Policy Institute, May 2024.

Childers, Chandra. 2024b. Breaking Down the South’s Economic Underperformance. Economic Policy Institute, June 2024.

Cooper, David, Sebastian Martinez Hickey, and Ben Zipperer. 2022. “The Value of the Federal Minimum Wage Is at Its Lowest Point in 66 Years.” Working Economics Blog (Economic Policy Institute), July 14, 2022.

Danney, Micah. 2021. “New Study Paints Bleak Picture of Alabama’s Tradeoff of Tax Breaks for Jobs.” Alabama Political Reporter, March 10, 2021.

De Vynck, Gerrit, and Lauren Kaori Gurley. 2022. “4,000 Google Cafeteria Workers Quietly Unionized During the Pandemic.” Washington Post, September 5, 2022.

Department of Labor (DOL). 2023. “The Family and Medical Leave Act” (fact sheet #28). February 2023.

Department of Labor (DOL). n.d. “Questions and Answers About the Minimum Wage” (web page). Accessed April 29, 2024. 

DeWitt, Larry. 1996. Research Note #1: Origins of the Three-Legged Stool Metaphor for Social Security. Social Security Administration, May 1996.

Durbin, Dee-Ann. 2023. “Third Trader Joe’s Store Votes to Unionize.” Associated Press News, January 27, 2023.

Economic Policy Institute. 2023. Current Population Survey Extracts, Version 1.0.40.

Economic Policy Institute (EPI). 2024a. Low Wage Workforce Tracker.

Economic Policy Institute (EPI). 2024b. Minimum Wage Tracker.

Economic Policy Institute (EPI). 2024c. State of Working X Data Library.

Economic Policy Institute (EPI). 2024d. Worker’s Rights Preemption in the U.S.: A Map of the Campaign to Suppress Workers’ Rights in the States. Economic Policy Institute.

Eisenbrey, Ross. 2009. No Coercion in Card Check (economic snapshot). Economic Policy Institute, August 18, 2009.

Eisenbrey, Ross. 2012. “Card Check Survives as Way to Choose a Union.” Working Economics Blog (Economic Policy Institute), September 7, 2012.

Florida Policy Institute (FPI). 2024. “Enforcing the Minimum Wage: Statewide Wage Theft Threatens the Gains of Amendment 2” (web page). Accessed March 15, 2024. 

Freeman, Richard, Eunice Han, David Madland, and Brendan V. Duke. 2015. “How Does Declining Unionism Affect the American Middle Class and Intergenerational Mobility?” National Bureau of Economic Research Working Paper no. 21638, October 2015.

Frymer, Paul, and Jacob M. Grumbach. 2020. “Labor Unions and White Racial Politics.” American Journal of Political Science 65, no 1: 225–240.

Gould, Elise. 2019. “Zero Weeks Plus Ellen Bravo on the Importance of Paid Family and Medical Leave.” Working Economics Blog (Economic Policy Institute), May 17, 2019.

Gould, Elise, and Katherine deCourcy. 2023. Low-Wage Workers Have Seen Historically Fast Real Wage Growth in the Pandemic Business Cycle. Economic Policy Institute, March 2023.

Gould, Elise, and Hilary Wething. 2023. Paid Sick Leave Access Expands with Widespread State Action. Economic Policy Institute, November 2023.

Greenhouse, Steven. 2023. “Will Starbucks’ Union-Busting Stifle a Union Rebirth in the US?” Guardian, August 28, 2023.

Harris, Javon L. 2024. “McMaster Pushes Against Labor Unions in SC. What Other Issues Top His 2024 Agenda?” The State, January 25, 2024.

Hickey, Sebastian Martinez. 2023. “Twenty-Two States Will Increase Their Minimum Wages on January 1, Raising Pay for Nearly 10 Million Workers.” Working Economics Blog (Economic Policy Institute), December 21, 2023.

Hsu, Andrea. 2022. “Starbucks Workers Have Unionized at Record Speed; Many Fear Retaliation Now.” NPR, October 2, 2022.

Illinois Department of Labor (Illinois DOL). n.d. Paid Leave for All Workers Act. Illinois.gov.

Ingram, Paul. 2023. “Teachers at Tucson’s BASIS Charter School Overwhelmingly Vote to Form Union.” Arizona Mirror, April 13, 2023.

Insurance News Net. 2022. “Paid Family Leave Model Law One of Four Adopted by NCOIL” (press release). December 16, 2022.

Ivey, Kay. 2024. “Unions Want to Target One of Alabama’s Crown Jewel Industries, but I’m Standing Up for Alabamians and Protecting Our Jobs.” Made in Alabama, January 10, 2024.

Johnson, Jack. 2023. “Why the Secret Union Ballot Is the New Battle for Worker Freedom in Tennessee.” Tennessean, March 30, 2023.

Kaiser Family Foundation (KFF). 2023. “State Policies on Paid Family and Sick Leave,” State Health Facts [table], accessed April 29, 2024.

Keisler-Starkey, Katherine, Lisa N. Bunch, and Rachel A. Lindstrom. 2023. Health Insurance Coverage in the United States: 2022. U.S. Census Bureau, September 2023.

Kemp, Brian P., Office of the Governor (Kemp). 2024. “Gov. Kemp Lays Out Priorities for 2024 Session at Georgia Chamber’s Annual Eggs and Issues Legislative Event” (press release). January 10, 2024.

Landroche, Patrick. n.d. HR Report: Paid Family Leave in New Hampshire? A Look at the Granite State Paid Family Leave Plan. New Hampshire Municipal Association.

McNicholas, Celine, Margaret Poydock, Julia Wolfe, Ben Zipperer, Gordon Lafer, and Lola Loustaunau. 2019. Unlawful: U.S. Employers Are Charged with Violating Federal Law in 41.5% of All Union Election Campaigns. Economic Policy Institute, December 2019.

Mehta, Sapna, and Jessica Milli. 2023. Millions of Working People Still Don’t Have Access to a Single Paid Sick Day. Center on Law and Social Policy, May 2023.

Mishel, Lawrence. 2021. The Enormous Impact of Eroded Collective Bargaining on Wages. Economic Policy Institute, April 2021.

Mishel, Lawrence, Lynn Rhinehart, and Lane Windham. 2020. Explaining the Erosion of Private-Sector Unions. Economic Policy Institute, November 2020.

Morrissey, Monique. 2016. The State of American Retirement: How 401(k)s Have Failed Most American Workers. Economic Policy Institute, March 2016.

National Association of Plan Advisors (NAPA). 2017. “What’s the Most Common Match?” NAPA, January 3, 2017.

National Conference of State Legislatures (NCSL). 2023. “Right-to-Work Resources” (web page). Accessed March 15, 2024.

National Partnership for Women & Families (National Partnership). 2016. “Most Women in Fast Food Industry Cannot Earn Paid Sick Time, Have Gone to Work with ‘Troubling Symptoms,’ Survey Finds” (press release). November 22, 2016.

National Partnership for Women and Families (National Partnership). 2023. “Current Paid Sick Days Laws” (fact sheet). June 2023.

Scheiber, Noam. 2023. “Amazon Is Cracking Down on Union Organizing, Workers Say.” New York Times, December 8, 2023.

Shabo, Vicki. 2024a. “Paid and Unpaid Leave Policies in the United States ” (explainer). New America, January 2, 2024.

Shabo, Vicki. 2024b. “Paid Leave Benefits and Funding in the United States” (explainer). New America, January 2, 2024.

Shierholz, Heidi, Celine McNicholas, Margaret Poydock, and Jennifer Sherer. 2024. Workers Want Unions, But the Latest Data Point to Obstacles in Their Path. Economic Policy Institute, January 2024.

Widiss, Deborah A. 2023. “Privatizing Family Leave Policy: Assessing the New Opt-in Insurance Model.” Seton Hall Law Review, Indiana Legal Studies Research Paper no. 506.

Williams, Dave. 2024. “State Senate Republicans Pass Bill Dems Deride as ‘Union-Busting.’” Capitol Beat, February 8, 2024.

Williams, Ross. 2024. “Georgia Senate Panel Advances Bill Aimed at Making the State Even Less Hospitable to Union Workers.” Georgia Recorder, February 1, 2024.

Williamson, Molly Weston. 2023. “The State of Paid Sick Time in the U.S. in 2023” (fact sheet). Center for American Progress, January 2023.

Appendix

Appendix Table A

Appendix Table B

Meanwhile, this week the Biden administration announced four long-awaited protections for workers that have been EPI policy priorities:  

On Monday, the Centers for Medicare and Medicaid Services for the first time issued a final rule requiring nursing homes to provide minimum hours of nursing care per resident (3.48 hours) and to have a registered nurse available around the clock. In addition to protecting residents, the rule will improve the lives of underpaid and overworked nursing home workers and reduce staff turnover that exceeds 50% annually.

Taxpayers pay for 71% of long-term services and supports, mostly in the form of Medicaid and Medicare spending on nursing home care. But there was no federal standard requiring nursing homes to provide minimum hours of care per resident until the Biden administration followed through on a pledge to curb abuses by for-profit operators who dominate the industry (government and non-profit homes provide better care). The industry lobby fiercely contested the rule, claiming a shortage of workers—a claim belied by the fact that nursing homes pay less than other health care providers (a real shortage of workers would drive up pay).

On Tuesday, the Federal Trade Commission (FTC) issued a final rule banning most noncompete agreements for workers. Employers justify noncompete agreements that tie workers to specific employers as a means of protecting trade secrets, but most affected workers do not have access to proprietary information or they are covered by nondisclosure agreements. Noncompete agreements, which now cover at least 30 million workers according to research by EPI and others cited by the FTC, suppress wages by making it hard for workers to move to better jobs, and squelch competition by preventing workers from starting businesses.

Also on Tuesday, the Department of Labor (DOL) issued a final rule raising the minimum salary threshold for workers who can be exempt from earning overtime pay. The threshold will be raised in two steps to $58,656 for full-time workers, after which it will be adjusted every three years. In research cited by DOL, EPI found that the threshold covered 63% of salaried workers in 1975 but only 9% in 2023. DOL and EPI estimated that roughly 4 million workers—disproportionately women and workers of color—will be helped by the new rule.

In a third Tuesday announcement, DOL issued a final rule closing loopholes in rules protecting retirement savers from conflicts of interest in investment advice. The rule ensures that advice offered on rollovers to Individual Retirement Accounts, advice on the sale of insurance products, and advice to retirement plan sponsors is in the best interest of retirement savers, in line with rules protecting retirement savers from conflicted advice in other contexts. Like the overtime rule, this rule has been many years in the making. An Obama-era rule extending fiduciary protections to retirement savers was delayed by the Trump administration and subsequently overturned by the conservative Fifth Circuit Court of Appeals. The Securities and Exchange Commission stepped in with a “Best Interest” rule, but left gaps exploited by unscrupulous financial professionals—in part due to jurisdictional limits that, for example, allowed insurance companies to market costly and complex annuities to vulnerable seniors, at an estimated cost to retirement savers of $5.5 billion or more per year (total savings from the rule are hard to assess but much higher).

These common-sense actions will improve protections for workers and are important steps toward creating a fair and sustainable economy.

The version of the rule as proposed last fall would ensure that advice offered on rollovers to Individual Retirement Accounts, advice on the sale of insurance products, and advice to retirement plan sponsors is in the best interest of retirement savers, in line with rules protecting retirement savers from conflicted advice in other contexts. These protections are urgently needed as unscrupulous financial professionals seek out regulatory weak spots to take advantage of unsophisticated small savers and steer them toward high-cost and inappropriate investment products, including complex annuities that even financial economists struggle to understand. EPI thanks the Department for acting quickly in the face of the finance and insurance industry’s delay tactics, and looks forward to reviewing the final rule in more detail.

“We are pleased to see that the administration has finalized this rule. When we consult a lawyer, doctor, or financial advisor for professional advice, it is because we don’t have the same expertise as these professionals,” said EPI President Heidi Shierholz. “Doctors and lawyers are required to act in their clients’ best interest. It is absolutely common sense that professional advice from financial advisors should also be carefully regulated to ensure that it is in the best interest of the client.”

“For too long, because of loopholes in the regulations, retirement savers have been misled by sales pitches disguised as advice,” said EPI Senior Economist Monique Morrissey. “This rule will help level the playing field for advisors that play fair and expand the market for transparent and competitively priced investments, including annuities. The winners from this rule will be retirement savers and companies selling better products.”

Read EPI’s full public comment in support of the rule here.

The Honorable Bernie Sanders, Chair

The Honorable Bill Cassidy, Ranking Member

Senate Committee on Health, Education, Labor, and Pensions

428 Dirksen Senate Office Building

Washington, DC 20510

Re: Hearing of the Senate Health, Education, Labor, and Pensions Committee to consider “Taking a Serious Look at the Retirement Crisis in America: What can we do to expand defined benefit pension plans for workers?”

Dear Chairman Sanders, Ranking Member Cassidy, and members of the committee:

On behalf of Economic Policy Institute (EPI), I am pleased to submit this statement for the record for the February 28, 2024, Senate HELP Committee hearing on the retirement income crisis. EPI is a nonprofit, nonpartisan think tank created in 1986 to include the needs of low- and middle-income workers in economic policy discussions. EPI believes every working person deserves a good job with fair pay, affordable health care, and retirement security. We welcome this opportunity to comment on the causes of the retirement crisis and ways to alleviate it.

The 401(k) revolution has failed working families

Steady contributions, affordability, and lifetime income are the building blocks of an effective retirement system. Social Security and traditional defined benefit pensions check all three boxes, 401(k)-style defined contribution plans check none. 

The roots of the retirement crisis can be traced to the early 1980s, when employers began shifting from secure pensions to defined contribution plans around the same time that Congress enacted cuts to Social Security to avert an imminent shortfall.

The shift from defined benefit pensions to defined contribution plans is an experiment that failed. 401(k)s were initially intended as a perk for bankers, not a substitute for pensions.1 However, 401(k)s took off quickly and now outnumber defined benefit pensions among private-sector workers by a factor of nearly eight to one (Figure A).

Figure A

401(k)s do a poor job of building savings

401(k)s made it easy for employers to offer a retirement plan since much of the cost and all of the risk fall on workers. Despite making it easier on employers, the shift from traditional pensions to 401(k)s did not increase the share of workers participating in a retirement plan, which has long hovered around 50%.2 It did, however, widen the gap between retirement haves and have-nots.3

Though defined contribution plans have outnumbered defined benefit pensions in the private sector for three decades, they have done a poor job of growing retirement savings. There are fewer assets in defined contribution plans ($10.0 trillion) than in defined benefit plans ($15.4 trillion). This does not take into account the $13.0 trillion in Individual Retirement Accounts (IRAs), perhaps half of which were rolled over from 401(k) accounts.4 However, a rough equivalence between assets held in defined benefit pensions and retirement account plans is unimpressive given the much larger number of workers participating in defined contribution plans.

Retirement account balances are highly unequal

Most households have nothing or next to nothing saved in retirement accounts. Even among households nearing or starting retirement (ages 60–64), 44% have nothing saved in these accounts, and the median household has only $10,400. The top 10%, meanwhile, have over $1 million saved in retirement accounts (Figure B).5

Figure B

Racial and ethnic disparities are stark.6 Most Black (65%) and Hispanic (70%) households have nothing saved in retirement accounts.7 Even focusing on households approaching or entering retirement (ages 60–64), 65% of Black and 82% of Hispanic households lack retirement account savings. As shown in Figure C, mean account balances also show large and persistent disparities by race and ethnicity.

Figure C

Many workers get no help from their employer or the government

There are many reasons why most households have little or nothing saved in retirement accounts, including savings diminished by high fees and pre-retirement withdrawals. But the most important factor is that nearly half of workers (47%) do not participate in a plan, in most cases because their employer does not provide one or because they are not eligible.8

Participation rates vary considerably by industry, occupation, and other factors.9 Union membership is an important factor, especially among blue-collar workers, since 94% of private-sector union members have access to a retirement plan and 84% participate.10 Retirement plan participation is higher among construction (50%), manufacturing (69%), and trade, transportation, and utilities (51%) workers, where unionization rates are relatively high, than among leisure and hospitality workers (16%), where unionization rates are low.11 Unions influence retirement plan access not only among unionized employers but also among competing employers.

Though some workers opt not to participate in an employer plan, this is not necessarily a short-sighted decision, as is often assumed. Many low-income and part-time workers are not eligible for an employer contribution and do not gain a tax advantage by participating because they do not owe income tax. These workers nonetheless face a 10% penalty if they need to access their own funds before age 59-1/2 unless they qualify for a special exemption.

Thus, it is not surprising that many low-income and part-time workers, including many retail workers, do not participate in a retirement plan. Only 9% of Dollar General workers, for example, have positive 401(k) balances even though the company considers all its employees “active participants” who are eligible to contribute their own money to the plan. Though the company offers a seemingly generous dollar-for-dollar matching contribution up to 5% of pay, workers are only eligible for the match after a year of service and 1,000 hours, and most retail workers—including, presumably, Dollar General employees—work part-time and do not last a full year.12 Though employers are required to extend eligibility to part-time workers who work at least 500 hours per year for three years (reduced to two years starting in 2025, thanks to the SECURE 2.0 Act of 2022), companies like Dollar General can continue to exclude workers by limiting their hours.

In any case, it would be difficult for most Dollar General workers to contribute to their 401(k) plan since the company has the dubious distinction of employing the highest share of workers (92%) earning under $15 per hour out of the large service-sector employers analyzed in one study.13 Dollar General’s reliance on a low-paid, part-time, and high-turnover workforce kept its 401(k) contributions to a measly $200 per worker in 2022.14

Federal subsidies for retirement accounts are costly and mostly go to high-income households

The U.S. Treasury Department estimates that contributions to tax-favored retirement accounts cost taxpayers $138.5 billion in 2021.15 However, we do not actually know how much these subsidies cost because the federal government does not track untaxed investment earnings and other factors that would be needed to calculate tax losses, and different agencies use different estimation methods.16

In contrast, we closely monitor Social Security’s finances, including long-term projections. The annual release of the Social Security Trustees report elicits concern about projected shortfalls, which the Social Security actuaries last year estimated at 1.3% of GDP over 75 years.17 Meanwhile, Andrew Biggs of the American Enterprise Institute and Alicia Munnell of Boston College’s Center for Retirement Research estimate that the combined cost of tax expenditures related to retirement similarly amounted to 1.3% of GDP annually, yet these subsidies receive far less scrutiny than Social Security’s projected shortfall.18 In addition to receiving less attention, some forgone revenues from tax-favored accounts would improve Social Security’s finances because some contributions to employer retirement plans are not subject to the payroll taxes that fund Social Security and Medicare.

This is not to suggest that all subsidies for retirement should be scrapped. However, those that disproportionately benefit upper-income households and do little to increase saving should be repurposed. The Tax Policy Center estimates that 60% of tax expenditures for retirement saving accounts go to the highest income quintile (20%).19 Since these households tend to save anyway, the subsidies do little to incentivize saving but rather induce households to steer savings to tax-favored accounts.20

Tellingly, most households approaching retirement would have accumulated more in retirement accounts if tax subsidies that were supposed to encourage saving had instead been divided equally among households and invested in Treasury bonds with no employer or employee contributions—a damning assessment of the efficacy of these supposed saving incentives.21

We need to fix 401(k)s before expanding them

There are things we can do to make 401(k)s better, but these have received less support than policies to make them bigger. The financial services industry has embraced automatic enrollment, expanding contribution limits, and pushing back the age that participants are required to start withdrawing funds. In contrast, efforts by the Obama administration and others to improve incentives for low-income savers received little industry support and took years to pass because small accounts are not lucrative. Overdue changes to the low-income Saver’s Credit passed in SECURE 2.0 will not take effect until 2027, whereas provisions benefiting higher-income households, such as raising the age for required distributions, take effect sooner.22 Another indicator of who these accounts really serve: exposés of billionaires shielding millions and even billions in tax-favored retirement accounts have not led to better rules and enforcement around contribution limits or capping account balances, though the Obama and Biden administrations proposed limits on accumulations.23

Meanwhile, efforts to ensure that retirement savers are not steered to high-cost investments by salespeople posing as financial advisors have met with fierce industry opposition.24 Though there has been a welcome trend toward lower-cost passive investment strategies, retirement savers are still being steered to inappropriate high-cost investments through gaps in rules intended to protect savers, since these rules do not apply to rollovers or complex insurance products that even financial professionals have difficulty pricing.25

This is exactly backwards. Before we funnel more money to 401(k)s, we need to ensure that they are an affordable savings vehicle for ordinary workers, not a tax dodge for the wealthy. Even then, our priority should be expanding Social Security and access to secure pensions rather than relying more on 401(k)s.

Social Security is key, but benefits are modest

Social Security replaces only 39% of pre-retirement earnings for a medium earner retiring at 65 though the replacement rate is higher for low earners and lower for high earners. Before benefit cuts were implemented in 1983, including a gradual increase in the normal retirement age, the replacement rate for a medium earner who retired at 65 was 50%.26

Social Security benefits are lower than benefits from similar plans in most peer countries. The average replacement rate for mandatory pensions in the Organisation for Economic Co-operation and Development is 51% for a medium earner—similar to the Social Security replacement rate prior to the 1983 cuts.27

Though modest, the value of Social Security benefits exceeds the value of savings in defined contribution plans for all but the wealthiest Americans. For higher income households, the value of defined benefit pensions exceeds both the value of Social Security and that of defined contribution plan savings (Figure D).

Figure D

Defined benefit pensions provide financial security for most union members and public-sector workers

Traditional defined benefit pensions are more efficient than 401(k)-style defined contribution plans. Pensions pool risk among workers who retire at different times and have different lifespans. In contrast, defined contribution plans are riskier because individual savers do not benefit from intergenerational risk-sharing or longevity risk pooling. Professionally managed pension funds also earn higher risk-adjusted returns and have lower administrative costs than individual accounts. Due to a lack of risk pooling and lower net investment returns, EPI and others have estimated that contributions to 401(k) plans need to be almost twice as large as contributions to defined benefit pensions to provide similar retirement security.28

In the private sector, most rank-and-file workers who participate in defined benefit pensions are union members. Whereas 58% of union members in the private sector have a defined benefit pension, only 7% of their nonunion counterparts do.29 Defined benefit pensions are the norm in the public sector, where secure pensions partly compensate for lower salaries. Three-quarters (75%) of all state and local government workers—including 82% of full-time workers and 82% of union members—participate in a defined benefit pension.30

Public pensions are especially critical for women and Black workers, who gravitate toward public-sector jobs with secure benefits despite a public-sector pay gap.31 Black (27%) and non-Hispanic white (27%) working households have similar rates of defined benefit pension coverage, as do unmarried or unpartnered working women (15%) and working men (13%).32

While some union members, including many auto workers, participate in single-employer pension plans, others participate in multiemployer plans jointly sponsored by employers and unions. These Taft-Hartley plans are common in sectors where workers often have longer-lasting relationships with unions than with individual employers, such as the trucking and construction industries. Multiple-employer plans such as TIAA are also common among mobile professionals, such as university professors and clergy.

Multiemployer Taft-Hartley plans can survive the demise of individual employers but run into trouble when an entire industry, or union membership in an industry, shrinks rapidly. With a low ratio of active participants to retirees, it becomes difficult for mature plans to adjust contributions to offset volatile investment returns even if the plans were adequately funded to begin with.33 Congress included assistance for troubled multiemployer plans in the American Rescue Plan of 2021, effectively stabilizing them for decades to come. However, additional steps will eventually be needed to ensure that these plans can weather the next storm and serve future generations.

The challenge of defined benefit pensions is that while they eliminate individual longevity and investment risks through risk pooling, sponsors still bear some cohort longevity and market risks because future lifespans and long-term investment returns cannot be perfectly predicted. Pension plans deal with this challenge by gradually adjusting contribution rates to offset nontransitory changes in life expectancy or investment returns—a strategy that works well for public-sector employers and multiemployer plans with a stable or growing number of active participants. Though quasi-mandatory participation can be enforced through collective bargaining agreements, extending pension-like benefits to a broader group of workers might require mandates or greater risk sharing with participants in so-called “hybrid” plans that combine elements of defined benefit and defined contribution plans.

It is time for an overhaul of our retirement system that builds on what works

Social Security is the most important source of retirement income for most workers but needs to be strengthened and significantly expanded along the lines proposed by Chairman Sanders and other cosponsors of the Social Security Expansion Act.34 We also need to expand Supplemental Security Insurance and other social insurance programs to ensure that seniors and people with disabilities are lifted above poverty and families are not devastated by medical and caregiving expenses.

Defined benefit pensions are critical to the retirement security of public-sector and unionized workers. We need to protect existing plans while exploring ways to extend secure pension benefits to more workers. Hybrid plans in some states, provinces, and countries that equitably share risk between employers and workers could serve as models for expanding multiple-employer plans in the United States.35

Three decades after 401(k)s became the most common retirement plan in the private sector, most workers approaching retirement have little or nothing in these accounts. We should stop pretending that the problem is workers and not a poorly designed system that has failed them.

We should begin by implementing the Department of Labor’s Retirement Security Rule without delay. We should also tighten and enforce 401(k) contribution rules, set a $5 million or lower limit on account balances, tax inherited balances immediately, and use the savings from these reforms to help low-income savers.

We should take steps to prevent employers from discriminating against part-time workers, including workers who would prefer to work full-time but are limited to part-time work by employers seeking to save on benefit costs. A provision in the Part-Time Worker Bill of Rights that extended retirement benefits to part-time workers who were employed for two years was included in SECURE 2.0, but more could be done to expand access to other part-time workers.

Ultimately, employers who want to avoid providing retirement benefits will find ways to do so in a voluntary system. Some state and local governments have therefore taken the step of requiring employers to at least facilitate worker contributions to state-sponsored IRAs via automatic enrollment and payroll deduction. While Auto IRAs do not allow for employer contributions, these efforts could prompt federal action, possibly including requirements for employer contributions or a government match.36 The idea of an employer mandate has gained currency in recent decades though it should not be viewed as a substitute for Social Security expansion.

Sincerely,

Monique Morrissey, Ph.D.

Senior Economist

Economic Policy Institute

Notes

1. Sarah Max, “The Inventor of the 401(k) Thinks It Has Gone Awry, Barron’s, November 16, 2018; Taylor Tepper, “Ted Benna, Father of the 401(k), on the State of Retirement Savings Today, Forbes, December 22, 2021.

2. Siavash Radpour, Michael Papadopoulos, and Teresa Ghilarducci, Trends in Employer-Sponsored Retirement Plan Access and Participation Rates: Reconciling Different Data Sources, Schwartz Center for Economic Policy Analysis Research Note #2021-01, January 2021; Andrew G. Biggs and Alicia H. Munnell, The Case for Using Subsidies for Retirement Plans to Fix Social Security, Center for Retirement Research at Boston College Issue in Brief 24-2, January 16, 2024.

3. John Sabelhaus and Alice Henriques Volz, “Are Disappearing Employer Pensions Contributing to Rising Wealth Inequality?” FEDS Notes, February 1, 2019; Nadia Karamcheva and Victoria Perez-Zetune, “Defined Benefit and Defined Contribution Plans and the Distribution of Family Wealth,” Congressional Budget Office Working Paper Series, February 2023.

4. Federal Reserve Board of Governors, Financial Accounts of the United States, Third Quarter 2023, Table L.117, 2023 Q2; Sarah Holden and Daniel Schrass, The Role of IRAs in US Households’ Saving for Retirement, Investment Company Institute, January 2022, Figure 10.

5. Though households with defined benefit pensions do not have to rely as much or at all on retirement account savings, excluding these households makes account savings look worse, not better.

6. Monique Morrissey, “Gaps in Retirement Savings Based on Race, Ethnicity and Gender,” Statement before the U.S. Department of Labor Advisory Council on Employee Welfare and Pension Benefit Plans, June 25, 2021.

7. Author’s analysis of Federal Reserve Survey of Consumer Finances microdata, 2022.

8. U.S. Bureau of Labor Statistics (BLS), Employee Benefits in the United States, March 2023 (Excel tables).

9. Monique Morrissey, Siavash Radpour, and Barbara Schuster, The Older Workers and Retirement Chartbook, Chapter 2, Economic Policy Institute and Schwartz Center for Economic Policy Analysis, November 16, 2022.

10. U.S. Bureau of Labor Statistics (BLS), Employee Benefits, 2023.

11. U.S. Bureau of Labor Statistics (BLS), Employee Benefits, 2023; U.S. Bureau of Labor Statistics, Union Member—2023 (News Release), January 23, 2024.

12. U.S. Bureau of Labor Statistics (BLS), “Retail Trade: NAICS 44-45,” Industries at a Glance (web page), February 21, 2024. Annual separations in the retail trade industry in 2023, derived by summing monthly rates, was 55% in 2023 based on BLS Job Openings and Labor Turnover Survey (JOLTS) data accessed on the BLS JOLTS website February 27, 2024.

13. Annette Gailliot, Kristen Harknett, Daniel Schneider, and Ben Zipperer, “The Company Wage Tracker: Estimates of Wages at 66 Large Service Sector Employers,” The Shift Project and the Economic Policy Institute Research Brief, April 2022.

14. Author’s estimate based on Dollar General 401(k) Form 5500 for 2022, accessed through https://www.efast.dol.gov/5500Search/ on February 27, 2024; and Dollar General Form 10-K annual report for 2022, accessed through https://www.sec.gov/edgar/searchedgar/companysearch on February 27, 2024.

15. U.S. Department of the Treasury, Tax Expenditures, FY 2024, Table 4, March 2023, accessed through https://home.treasury.gov/policy-issues/tax-policy/tax-expenditures on February 27, 2024.

16. Benjamin H. Harris, Eugene Steuerle, and Caleb Quakenbush, Evaluating Tax Expenditures: Introducing Oversight into Spending Through the Tax Code, Tax Policy Center, July 10, 2018.

17. 2023 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds.

18. Andrew G. Biggs and Alicia H. Munnell, The Case for Using Subsidies for Retirement Plans to Fix Social Security, 2024.

19. Tax Policy Center, “T22-0264 – Tax Benefit of Retirement Savings Incentives (Present Value Approach), Baseline: Current Law, Distribution of Federal Tax Change by ECI Percentile, 2022,” December 29, 2022, accessed via taxpolicycenter.org on February 27, 2024.

20. Research summarized in Andrew G. Biggs and Alicia H. Munnell, The Case for Using Subsidies for Retirement Plans to Fix Social Security, 2024.

21. Author’s analysis of U.S. Treasury Department, “Present Value of Tax Expenditures” tables, 2001-2022; Federal Reserve Board of Governors Survey of Consumer Finances microdata, 2001-2022; and Federal Reserve Board of Governors, “Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity, Quoted on an Investment Basis,” (accessed through FRED Economic Data, Federal Reserve Bank of St. Louis on February 27, 2024).

22. American Society of Pension Professionals and Actuaries (ASPPA), Key SECURE 2.0 Act Provisions and Effective Dates, January 11, 2023.

23. Fred Hiatt, “Obama’s Modest Proposal to Cap Retirement Entitlements,” Washington Post, May 5, 2013; Justin Elliott, Patricia Callahan, and James Bandler, “Lord of the Roths: How Tech Mogul Peter Thiel Turned a Retirement Account for the Middle Class Into a $5 Billion Tax-Free Piggy Bank,” ProPublica, June 24, 2021; Ted Godbout, “Biden Budget Resurrects ‘Build Back Better’ Retirement Plan Revenue Raisers,” ASPPA, March 10, 2023.

24. Tobias Salinger, “DOL Hearing Promises Passionate Support and Resistance from Industry—Here’s a Sample,” Financial Planning, December 11, 2023.

25. Monique Morrissey and Heidi Shierholz, “EPI comments on DOL’s Retirement Security Rule—Definition of an Investment Advice Fiduciary,” statement submitted to the U.S. Department of Labor Employee Benefits Security Administration on January 2, 2024.

26. Kyle Burkhalter and Chris Chaplain, “Replacement Rates for Hypothetical Retired Workers,” Social Security Administration Actuarial Note 2023.9, March 2023.

27. Organisation for Economic Co-operation and Development, Pensions at a Glance 2023, Table 4.1.

28. Monique Morrissey, Toward a Universal, Secure, and Adequate Retirement System. Retirement USA Conference Report, October 21, 2009; Dan Doonan and William B. Fornia, A Better Bang for the Buck 3.0, National Institute on Retirement Security, January 2022.

29. U.S. Bureau of Labor Statistics (BLS), Employee Benefits, 2023.

30. U.S. Bureau of Labor Statistics (BLS), Employee Benefits, 2023.

31. Nari Rhee, Closing the Gap: The Role of Public Pensions in Reducing Retirement Inequality, National Institute on Retirement Security, September 2023.

32. Married or partnered households have more than double the rate of pension coverage (31%) as single people (14%), in part because there may be two people employed. The source is the author’s analysis of Federal Reserve Survey of Consumer Finances microdata, 2022.

33. Jason Russell, The Role of Plan Demographics in the American Rescue Plan Act, Keynote at the National Institute on Retirement Security 2023 Annual Retirement Policy Conference, February 28, 2023 (presentation slides).

34. Stephen Goss, Letter to The Honorable Bernie Sanders and the Honorable Peter DeFazio (analysis of the Social Security Expansion Act), Social Security Administration Office of the Chief Actuary, June 9, 2022.

35. Dan Doonan and Elizabeth Wiley, The Hybrid Handbook: Not All Hybrids Are Created Equal, National Institute on Retirement Security, May 2021; J. Mark Iwry, David C. John, Christopher Pulliam, and William G. Gale, Collective Defined Contribution Plans, Economic Studies at Brookings, September 2021; Charles E.F. Millard, David Pitt-Watson, and Angela M. Antonelli, Securing a Reliable Income in Retirement: An Examination of the Benefits and Challenges of Pooled Funding and Risk-Sharing in Collective Defined Contribution (CDC) Plans, Georgetown University Center for Retirement Initiatives, Policy Report 21-03, April 2021; Monique Morrissey, Risk Sharing in a Voluntary Retirement Plan, Economic Policy Institute Technical Paper, August 2022.

36. See, for example, Teresa Ghilarducci, Guaranteed Retirement Accounts: Toward Retirement Income Security, Economic Policy Institute Briefing Paper #204, March 3, 2008; Gary Koenig, Jason J. Fichtner, and William G. Gale. Supplemental Transition Accounts for Retirement. AARP, January 2018; Chris Coons and Amy Klobuchar. “Most Americans Can’t Save for Retirement. We Want to Fix That.” CNN Business, April 25, 2019; John Hickenlooper and Thom Tillis, “Retirement Savings for Americans Act: Bipartisan, Bicameral Retirement Savings for Americans Act Would Make Saving for Retirement Reliable, Real, and Attainable for American Workers,” October 18, 2023.