Spencer Williams

Retired Baby Boomers who are saving for retirement through defined contribution plans like 401(k)s are drawing down their savings faster than their counterparts in previous generations who had pensions and other defined benefit plans, according to recent industry research. And on top of that, Baby Boomers who may be relying solely on their defined contribution plans may wind up with less savings for retirement than their counterparts who waited longer to withdraw savings from their defined benefit plans—and could, therefore, outlive their nest eggs.

Vanguard’s How America Saves report for 2022 provided cause for optimism with some of its findings. For example, employee participation rates in Vanguard-managed defined contribution plans remain high, and have not declined year-over-year during the pandemic. The majority of participants in Vanguard plans also increased or maintained their contributions last year, and the average account balance for Vanguard participants increased by 10% year-over-year, to $141,542.

Last year marked the 15^th anniversary of the Pension Protection Act of 2006. This legislation included well-intentioned provisions for helping Americans increase their retirement savings, including the capability for defined contribution plan sponsors to automatically enroll employees in their plans. Despite the good intentions behind auto enrollment, and all the positive outcomes that have resulted, its introduction also coincided with high workforce mobility and a lack of seamless plan-to-plan savings portability, which has led to a surge in small, stranded 401(k) savings accounts.

COVID-19 has altered so much in our nation, and our world, over the past two years. Many of us learned to stop and smell the roses during lockdowns, and count our blessings, especially health and family. For those who were fortunate enough to remain employed full-time during the pandemic and could work remotely, videoconferencing tools like Zoom and Microsoft Teams suddenly became indispensable for conferring with colleagues and customers.

Traditionally, the anniversary gift for couples celebrating their 15^th wedding anniversary is crystal. When the Pension Protection Act of 2006 was signed into law 15 years ago, a crystal ball would have been useful. Although this legislation was (commendably) crafted with the best of intentions, its unintended consequences for defined contribution plan participants and sponsors continue to reverberate.
 

Concurrent with the COVID-19 pandemic, our elected representatives have been grappling with the issue of wealth disparities between America’s white and minority workers. Commendably, there has been bipartisan support in Washington, DC for measures to assist those who are historically under-served or under-saved in our national system for accumulating and incubating retirement savings.
 

The Securing a Strong Retirement Act of 2021, nicknamed the “SECURE (Setting Every Community Up for Retirement Enhancement) Act 2.0,” was passed unanimously by the House Ways and Means Committee, and many expect the bill to pass the full House of Representatives.

Financial wellness has taken on a new urgency over the past year as we have witnessed a series of “once-in-a-lifetime” events that affect how we work and save for retirement. In response, many plan sponsors have adopted new and important tools to strengthen the financial wellbeing of their participants.
 

So many extraordinary developments took place last year that some trends fell under the radar. One of these—the sharp uptick in migration out of large U.S. cities—can make a significant impact on sponsors and their plans.

With Boston Mayor Marty Walsh’s nomination to become Secretary of Labor advancing through the Senate, the transfer of power in Washington, DC is progressing. Although the Department of Labor is taking direction from a Democratic administration, the solution to the problem of rampant asset-leakage from the U.S. retirement system will remain on track.