It is commonly acknowledged that economic disruptions of the COVID-19 pandemic changed the way in which Americans work. The jury is still out on the question of whether those changes a permanent. It is clear, however, that Gen X’ers and Millennials have different expectations of work than did Boomers, and that the workplace is far more diverse than ever before. These long-term trends seem to require a fundamental re-examination of the way that people plan their finances for retirement.
Daunting demographic data
Retirement savings are often conceptualized as a three-legged stool--with personal savings, employer pensions and Social Security payments as the three legs. For the largest group of U.S. workers – those born between 1965 and 1997, however, the demographic data is worrying. A few things stand out.
In 2023, the number of working women with small children was at an all-time high in the U.S. In that year, the participation rate of women ages 25-54 with children under age 5 who had a job jumped to over 70 percent. The staggering cost of childcare, however, has led many to choose part-time employment as a long-to-mid-range economic strategy.
Generation X, those born between 1965 and 1980, may have suffered disproportionately from the transition from old-fashioned annuity defined benefit plans to 401k plans, which shift the risk of investment loss to the worker. They also carry 57percent of the country’s $1.63 trillion student loan debt, averaging more than $44,000 in outstanding loans – more than any other age group. Nearly 40 percent plan to continue to work part-time during retirement. Millennial workers, those born between 1981 and 1996, face similar challenges. In 2023, 44 percent of this cohort were not in full-time employment.
Student loan debt and the cost of childcare reduce personal savings. Lower wages associated with part-time employment may ultimately affect Social Security payments. The eligibility requirements set by employers for participation in a 401k retirement plan, including working a minimum number of hours or having a minimum tenure on a job, have prevented many part-time workers from participating in an employer-sponsored ERISA plan.
A substantial portion of workers are in trouble when it comes to saving for retirement. All three legs of the imaginary savings stool look shaky. The SECURE Act takes steps to shore up at least the ERISA retirement plan portion of this.
SECURE nuts and bolts
As enacted in 2019, the SECURE Act expanded coverage to allow employees over the age of 21 who had worked at least 500 hours in three consecutive years to save through an employer’s 401k plan. As of 2024, that waiting period has now been shortened to two years. Employees may not, however, qualify for an employer matching contribution. These changes apply to a wider variety of retirement plans, including plans of educational institutions, technically known as “403(b)” rather than 401k plans.
The net effect is that long-term (meaning two years or more) part-timers may now have the chance to participate in an employer retirement plan. Even without the employer match, this can be important for younger workers juggling the demands of family, especially those who return to full-time work later, because of potential for long-term investment earnings. Even for older workers who move to part-time work in semi-retirement, the opportunity to save and invest is never lost.
A plan of action
READ MORE ERISA VIOLATION LEGAL NEWS
As a consequence, long-term part-time employees may have to initiate the conversation about the potential for participation in a 401k plan. Because the rules are both complex and new, it would be wise to reach out to an experienced ERISA lawyer for advice about what information a worker should collect before reaching out to an employer and how to frame the inquiry.
The task may seem daunting, and the potential reward far in the future, but the payoff can be substantial. This is likely only the first step in revamping a retirement system which no longer seems to meet the needs and expectations of modern American workers.