Tim Egan has been working since he was 14. He's now 56 and has spent most of his career as a restaurant manager. He has virtually nothing saved for retirement and, until last month, never had a 401(k) account.
Little wonder: Only two of the 20 restaurants where Mr. Egan has worked in the past four decades had retirement-savings plans.
“The restaurant business is what I'm good at, but few owners, especially of small places, offer retirement benefits, no matter how much money you help them earn,” says Mr. Egan, who worked his way up from dishwasher to waiter to bartender before rising to manager 20 years ago.
Mr. Egan's story isn't unusual among the legions of Americans who work part time, switch jobs frequently or earn their livings at small companies, which generated two-thirds of all new jobs last year. Even as people live longer and must save more for old age than prior generations, most cannot depend on any help from employers. Almost half of U.S. workers didn't have a company-sponsored retirement plan in 2013, compared with 39% in 1999, according to an analysis of Census Bureau data by the Schwartz Center for Economic Policy Analysis at the New School for Social Research in New York.
(More: Multiple-employer plans provide growth for retirement plan advisers, if they can handle it)
The lack of plans is fueling a retirement-savings crisis. Few workers save anything outside of employer-sponsored plans. Only 8% of taxpayers eligible to set aside money in an IRA or Roth IRA did so in 2010, according to the IRS.
Mr. Egan set up an IRA in his 40s. In a bid to make up for the years he hadn't saved, Mr. Egan invested mostly in equities and lost a lot of his savings during the financial crisis. He currently has less than $20,000.
Low-income Americans have long relied mostly on Social Security. Now middle-class professionals and managers are increasingly doing the same. But the average Social Security benefit — $15,700 a year — doesn't come close to replacing the earnings of those with mid-five and six-figure salaries.
“There's a huge coverage gap that needs to be addressed,” says Debra Whitman, chief public policy officer at AARP, the 37 million-member organization for people 50 and older.
Those most vulnerable include both millennials at startups and managers in their 40s and 50s who've gone from corporate jobs with benefits to small businesses without them. Some 58% of the 68 million wage-and-salary workers without a company-sponsored retirement plan in 2013 worked for a business with fewer than 100 employees, according to the Employee Benefit Research Institute.
“The current 401(k) system was designed for a workplace that doesn't exist for most people: lifetime careers at big corporations that offer benefits,” says Teresa Ghilarducci, an economist at the New School who researches retirement policies. “Saving consistently — which you need to do for just a modest retirement income — isn't remotely likely.”
With 10,000 baby boomers turning 65 each day, concerns are mounting about how to fix a system that excludes so many. There are plenty of ideas but little consensus among government officials, business executives, economists and others.
Small companies are among the most resistant. Many aren't convinced it's their responsibility to help employees save for retirement. And owners often balk at the costs and complications of offering a 401(k), even without a matching contribution. Only 45% of companies with fewer than 100 employees had 401(k)s in March, according to the Bureau Labor of Statistics.
Joel Freimuth, former chief executive officer of Chicago-based Blue Pearl Consulting, has advised about 500 small manufacturing and medical technology businesses. Only about 10% have a 401(k) plan. The vast majority fail to see that such a benefit helps retain talent and reduces recruitment and training costs. Mr. Freimuth's own company offered a 401(k) plan with matching funds to its 25 employees before he sold it to Immediate Solutions, a medical technology startup in New Jersey.
“Most companies I've worked with have said doing this isn't worth the trouble or the administrative costs and potentially higher liability insurance,” he says.
PLENTY OF OPTIONS
Financial services industry executives say employees still have plenty of options.
“They can walk into any bank, broker or credit union — or even go online, and open up an IRA funded with payday deductions,” said Marin Gibson, managing director of the Securities Industry and Financial Markets Association in New York.
Yet even the most disciplined savers can come up short without the boost of a company match. Employees can stash as much as $5,500 annually in an IRA and an additional $1,000 if they're 50 or older. A worker who consistently saves $2,500 between the ages of 25 and 65 and earns 4% annually would accumulate about $247,000 upon retirement, according to EBRI. Those savings will provide only about $10,000 a year, assuming seniors withdraw 4% annually, the amount financial planners recommend to ensure the money doesn't run out.
To address the retirement-savings crisis, President Barack Obama last year announced a plan to create “My Retirement Accounts,” or MyRAs, that would allow those without 401(k)s to direct part of their pay into accounts that invest in government bonds.
Progress on that proposal has been slow.
Three states — California, Illinois and Oregon — have approved laws to create IRAs that would automatically deduct 3% from employee paychecks, although none is expected to begin withdrawing money until 2017. Similar laws have been introduced in about 20 other states with Democratic-controlled legislatures.
GENEROUS PLAN
Those changes will come on the late side for Mr. Egan and the millions more like him. Earlier this year, fed up with his job in New York and his lack of benefits, he moved back to Minneapolis and landed as a manager at Smashburger, a chain with more than 300 company-operated and franchise outlets nationwide — and a generous 401(k) plan for corporate employees.
“One of the first questions I asked was when I'd be eligible and what's the match,” Mr. Egan says. This month, he became eligible for the plan, which matches 100% of employee contributions, up to 6% of earnings. He is determined to get the full company match.
“If I can work here at least 10 years and continue to advance,” Mr. Egan says, “maybe I can save enough to be able to retire some day.”
