This week, we learned that Social Security, the fund from which 56 million Americans receive retirement and disability benefits, will be out of money three years sooner (by 2033) than last projected.
As politicians in Washington face the reality that this puts real steam in the engine of “entitlement reform,” they should also be thinking about how to bolster private retirement savings in America to mitigate the reliance of U.S. workers and their families on the federal safety net.
Today in America, we save about four percent of our income – that’s about 50 percent of what we saved 30 years ago – and U.S. households save about half (or less) of what comparable households do in countries like Canada, the U.K., and Italy, nevermind the enormous gaps between what working Americans and their counterparts in China save. Part of the challenge is that, increasingly, American industry isn’t providing work-based savings plans for its employees. Companies are not required to provide 401(k), profit sharing, cash balance or other plans, of course, and absent these types of low-risk, easy-access savings opportunities – coupled with recent challenges in the economy overall – it’s hard for Americans to put money away. As a result, policymakers know that large numbers of Americans will need access to Social Security funds in order to simply get by. And for too many of them, those funds won’t be enough.
There are real opportunities before Congress to take policy steps to drive more savings. One of them is to promote and preserve private company employee stock ownership plans, or S ESOPs, through which employees get automatic retirement savings, oftentimes well beyond what they could ever put away for themselves, because they own stock in their companies and they take part in their companies’ economic success. Several thousand S corporation ESOP companies now exist in America, but more of them can be established if Congress works to create some political certainty for this structure and remove some of the technical and other barriers that prevent other businesses from adopting this superlative model for success and employee retirement savings. The National Center for Employee Ownership tells us that the average S ESOP account for an employee is at least three times the value of the average 401(k) plan – and S ESOP accounts have only been available under the law since 1998. While S ESOPs are not a panacea for national savings, they are an important and potentially powerful part of the solution.
Helping more companies get access to this business structure is more urgent now than ever, particularly as the national savings safety net looks to be weaker as time goes on.