President Trump said during his State of the Union address on Tuesday night that he wants to fix a “gross disparity” in America’s retirement system by creating new accounts for the roughly 56 million Americans who lack an employer-sponsored savings plan.
“[H]alf of all of working Americans still do not have access to a retirement plan with matching contributions from an employer,” Mr. Trump said.
The plan will be based on the Thrift Savings Plan offered to federal workers, with the U.S. government providing a match of up to $1,000 per year, Mr. Trump added.
The current retirement system effectively excludes millions of Americans who lack access to 401(k) and similar plans, according to a recent report from the National Institute on Retirement Security (NIRS). The nonpartisan group found that most Americans without an employer-sponsored plan are unlikely to put any money away for retirement.
Mr. Trump highlighted the issue in his speech by pointing out that the typical 401(k) balance is about $30,000 higher than when he took office, while noting that millions of workers without employer-sponsored plans and company matches aren’t enjoying the same gains.
The new plans will “ensure that all Americans can profit from a rising stock market,” Mr. Trump said.
Financial experts applauded the plan for confronting a long-standing shortfall in workplace retirement coverage.
“The time has come because so many people are now older and they realize the promise of the 401(k) just didn’t materialize,” Teresa Ghilarducci, a retirement expert and director of The New School for Social Research’s Wealth Equity Lab, told CBS News.
She added, “This goes much further than any other legislation in the last 45 years to get money into low-income workers’ retirement accounts.”
Here’s what to know about the plan.
How would the plan work?
The Trump administration’s new plan would expand on a bill signed into law by President Biden in 2022 called the Securing a Strong Retirement Act, or Secure Act 2.0. That bill itself was built on prior legislation passed during Mr. Trump’s first term, according to Axios.
The Secure Act 2.0 created a so-called Savers Match program, set to launch in 2027, under which the federal government will provide a 50% matching contribution up to $1,000 for low- to moderate-income workers.
In his address on Tuesday, Mr. Trump said the new plan would be similar to the Thrift Savings Plan, which provides federal workers with access to low-fee funds that invest in stocks and bonds.
The plans would be portable, meaning that the accounts are tied to workers, not their employers, and would follow them from job to job, according to a White House official. Private philanthropists would also be able to contribute to the plans, the official said.
Could this bridge the retirement gap?
Millions of Americans have been unable to save for retirement, data shows. The average American worker has less than $1,000 saved for retirement, according to NIRS. Lower-income workers in particular are left behind. Nearly 79% of full-time workers earning less than $27,400 a year lack access to a retirement plan, according to the Economic Innovation Group, a bipartisan public policy organization.
The new plan could help “those who have been left behind, the ones who don’t have the 401(k)s,” Treasury Secretary Scott Bessent told NBC News on Wednesday.
He added, “I think this is going to be a very big part of working Americans’ retirement program, because there is a tremendous amount of financial insecurity.”
Still, while the effort might help Americans put more money away, even those with employer-sponsored accounts are falling behind in their retirement readiness, research shows.
For workers who do have retirement savings, the median balance stands at $40,000, NIRS found — a far cry from the roughly $1.5 million that Americans say they need to retire comfortably.
What do retirement experts say?
Financial experts tell CBS News that the effort could help shore up the retirement funding gap in the U.S., but added that there are still plenty of hurdles to overcome.
“We’re encouraged by the administration’s focus on retirement access and look forward to details about the proposal to determine how it can effectively bridge the gap between those with and without employer-sponsored plans,” Chris Spence, managing director for federal government relations at financial services firm TIAA, said in an email.
While a positive step toward addressing the retirement gap, not every worker will take advantage of it, Ghilarducci predicted.
“I only expect about half of low-income workers to open up an account because, especially if they are young, they don’t have the money or they have other reasons to save — people are in a lot of debt,” making money tight, she added.
Workers can already save for retirement on their own by opening an Individual Retirement Account, although these investment vehicles are”underutilized,” Bankrate financial analyst Stephen Kates told CBS News.
“One reason is the absence of an employer match, which this proposal aims to address,” he noted.
Some experts questioned how Mr. Trump’s proposed retirement program would be funded and expressed doubt it would fundamentally address the country’s retirement crisis.
“Not only does the administration lack the fiscal authority to seed 401(k)s with a $1,000 taxpayer match, nor is this a good idea,” Romina Boccia, director of budget and entitlement policy at the san Cato Institute, a nonpartisan public policy think tank. “Americans need a simpler system of tax-advantaged savings via universal savings accounts, not more tax-advantaged accounts (ie Trump accounts) or related handouts.”
