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America Doesn’t Save Enough Week

By Jack Towarnicky

This week is America Saves Week.  And today, Thursday, March 1st, is “Save to Retire” day. The recommended “save to retire” actions are:    

“Saving now for retirement will ensure you have enough money to have a comfortable standard of living when you stop working or reduce the amount of hours you work. Participate in a work-related retirement program such as a 401(k) or open an Individual Retirement Account (or IRA). Already saving for retirement? We recommend increasing the amount you save toward retirement by 1percent.”

The 2016 Survey of Consumer Finances showed that 52.1% of households had money in a retirement savings account, and that the median account value was $60,000, and the average account value was $228,900. This was a slight improvement compared to 2013 data of 49.2%, $60,800 and $207,500. Still, the significant difference between median and mean suggests there are still a lot of zeroes out there.  

The Plan Sponsor Council of America encourages Americans to participate in America Saves Week, the 401kRace, and 401(k)/403(b) Day activities – all initiatives designed to increase retirement savings. However, individuals may need to do more.    

Most American Workers Can Save More
Plenty of Americans have greater savings capacity and increasing 401(k), 403(b) or 457(b) contributions is doable.  

This year, there was a unique opportunity to save more when federal income tax withholding changed as a result of the Tax Cuts & Jobs Act of 2017.  The IRS posted updated withholding tables on January 11, 2018  and confirmed that employers should begin using those tables no later than February 15, 2018. Oops, most people missed that one. Many probably didn’t notice the increased take home pay, and even fewer thought of saving that money.  

Opportunities to save more present themselves all the time, but many are missed. Consider 2011 and 2012. In those years, workers paid a FICA tax rate of 4.2%, a temporary 2% reduction from today’s 6.2%.  The personal savings rate slightly improved during that period.   

However, beginning January 1, 2013, the FICA tax reverted back to 6.2%. Since the FICA contribution is made with after-tax dollars, your 1st paycheck in 2013 should have been 2% - 3.5% less. No surprise that the personal savings rate immediately dropped back to a low level and that it has declined even further since then.*  

But, Many Workers Believe They Can’t Afford To Save
Urging workers to save hasn’t worked for everyone. Urging those who live paycheck to paycheck to save reminds me of the scene in Gone With The Wind where Scarlett leads the horse on the way back to the O’Hara plantation after the fall of Atlanta. Yet in the next scene, she has pushed and whipped the “nag” so much that it collapses and dies just short of Tara.     

Early in 1986, in my last plan sponsor role, I conducted a survey to identify workers’ benefit perceptions. I hoped to use the results to reshape strategy. Ninety-plus percent had a favorable impression of our 401k plan! That was better than any of the other benefits we offered (DB pension, medical, dental, life, LTD, vacation, retiree medical, etc.)  That floored me. Here’s why. Relative to other 1980’s plan designs, we had a typical match (50% of first 6% of pay contributed) and superior vesting (immediate, 100%). However, we limited eligibility to workers who were age 25 AND who had completed three years of service. So, less than 75% of employees were eligible. And, of those eligible, only 74% were contributing.  And, only 2/3 of those who were contributing were receiving the full employer match. So, just over 50% of employees were participating while less than 40% of employees were receiving the full employer match!  I myself was not eligible to participate. Yet, in our 1986 representative sample, 90+% thought the 401k was our best benefits plan!

I reached out to my communications leader.  I wanted to start a campaign to get everyone who was eligible to contribute 6+% of pay. She resisted. She stated that many, perhaps most “can’t afford to save more!”  I responded, “They can’t afford NOT to save more!”  

For the next 20 years, we took a variety of steps/initiatives designed to increase participation and contribution rates such as easy enroll (one click), direct outreach to non-participants, easy escalate (one click), communicating to each worker how much he or she “left on the table”, etc. I ultimately concluded that many workers didn’t have enough disposable income to set aside some money for each and every future financial need. My campaigns had a variety of themes: “The Game of Life,” “A Sound Investment,” “Drive to Your Dreams.”  While each campaign was better than the predecessor, too many employees were not saving, and too many who were saving were not saving enough to get the full employer support. I finally conceded that a “just save more for retirement” campaign was futile, at least for those workers who were living paycheck to paycheck.  So, I “stopped beating that dead horse.”  

In 20 years, we only had one month, July 1996, where 90% of workers contributed to the plan. We decided education was not enough. We started to innovate in our plan design. We improved plan loan processing to 21st Century standards. We reduced leakage by eliminating hardship withdrawals. And, in 2007 we adopted perennially-applied automatic enrollment and automatic escalation features. Our underlying goal was to anticipate worker finances and to meet workers where they were. We adopted plan features which were holistic and designed to leverage money’s inherent fungibility. Our goal was to enable as many workers as possible to take full advantage of the tax preferences and employer financial support that are only available in a 401(k), 403(b), or 457(b) plan.  (See:,, and ) The result?  In almost every year since 2007, 95+% of all employees have saved enough to receive the full employer match. The details can be found at:

Innovate AND educate!  As a plan sponsor, you have an opportunity to help improve almost all workers’ financial wellness.    

*  The spike in the savings rate at year-end 2012 was primarily the result of a concentration of dividend and capital gains income in the 4th quarter 2012 where higher income individuals wanted to avoid the increase in income and other taxes that took effect January 1, 2013.  

Always check with tax and legal counsel before taking any action.  We are providing this information to you solely in our capacity as individuals with knowledge and experience in the industry and not as legal advice.  The issues presented here may have legal implications, and we recommend discussing this matter with your tax and legal counsel prior to choosing a course of action.  This publication was prepared to support the informational needs of the Plan Sponsor Council of America on the issues discussed.  The publication focuses on the needs of our association and the issues of interest to association members.  The publication is not and should not be used as a substitute for legal, accounting, actuarial, or other professional advice.   

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