In the Gig Economy, the U.S. Will Soon Face a Crisis in Retirement Savings

We live in the greatest time to be alive. Thanks to rapid innovations in science, medicine and technology, the opportunity to live longer and healthier has never been greater. But, for lots of Americans, and especially Texans, this rising quality of life may end at retirement's door. Half of today's working-age households will not be able to maintain their current standard of living in retirement, according to a Boston College Center for Retirement Research study.Lack of access to high-quality, affordable savings vehicles, including workplace retirement plans, is a key cause of this savings deficit and hits Texas particularly hard. The state, according to Pew Charitable Trust, has the third-lowest rate of access to workplace plans for private sector workers age 18-64. Half of American households age 55 and older have no retirement savings in a defined contribution plan or individual retirement account, according to the Government Accountability Office. Also according to its research, of the Americans who do, the median amount of their savings is $109,000. Now try to reconcile this amount with a Fidelity forecast that an average 65-year-old couple needs $285,000 just for health care over the course of retirement and you understand the depth of the challenge.Mercer projects the U.S. retirement savings gap will grow to $137 trillion by 2050 due in large part to the lack of access to savings vehicles and inadequate savings, exacerbated by a decade of low interest rates.Congress can change this trend by passing comprehensive retirement security legislation that, if enacted, would greatly improve the retirement prospects for many Americans. The Setting Every Community Up for Retirement Enhancement Act, or SECURE Act, which recently passed the House, recognizes that building on the employer-based retirement system is an important step to close the savings deficit.About one third of all private-sector employees — close to 40 million American workers — do not have access to workplace savings plans, according to the Bureau of Labor Statistics' 2017 national compensation survey. The problem is particularly acute among employees of small companies: The same study found that only half of workers at businesses with fewer than 100 employees have access to workplace plans.Retirement plans are even rarer among freelance and self-employed workers in the gig economy, a sobering fact, given that the recent Mercer Global Talent Trends report found that 79% of company executives believe contingent workers will substantially replace full-time roles in their organization in just the next few years.This growth in workforce mobility, from gig workers to more rapid career and job changing, will force all of us to rethink the availability and portability of retirement savings vehicles. At the same time, public sector retirement finances face a shortfall of their own. According to the University of Pennsylvania, state and local government pensions may be underfunded by up to $4.4 trillion. In Texas, for instance, the Employees' Retirement System has only 74 percent of the assets needed to cover promised benefits, according to AARP.One of the most promising ways the SECURE Act addresses these challenges is by removing barriers to multiple-employer plans, where a single 401(k) plan is jointly sponsored by a number of unrelated employers.So-called open MEPs would promote more plan coverage and savings, especially among smaller employers, by turning over many responsibilities to outside plan administrators that would streamline duties and lower costs for employers. In time, this structure might be extended to improve coverage for self-employed people.The SECURE Act will also expand access to workplace savings opportunities by requiring that employer plans permit participation by part-time employees who work at least 500 hours in three consecutive years.Longevity risk, the possibility that retirees will outlive their savings, is one of the most significant threats to retirement security. Consider that the average life expectancy in developed countries has rapidly risen in the past 50 years. Yet many workplace savings plans do not include any guaranteed lifetime income features to help manage this challenge.The SECURE Act would encourage more lifetime income payout options and would also make these lifetime income options more portable from plan to plan, or job to job.Failure to adjust today's policies to meet tomorrow's needs would force more workers to rely primarily on Social Security and other government programs. These programs groan under the weight of growing retired populations supported by fewer active workers.The longer we wait to address these challenges, the more drastic the solutions will have to be.As an adviser to thousands of U.S. employers, Mercer navigates the challenges that come with the retirement savings gap every day. We believe this legislation can be an important step to make it easier for more Americans to retire with confidence. After all, we don't just want people to live longer. We want them to live well.Martine Ferland is chief executive of Mercer, a unit of Marsh and McLennan Cos. She wrote this column for The Dallas Morning News.  Continue reading...

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