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Coverage Gap

Retirement security for our golden years is not a forgone conclusion for Americans these days. There have been significant shifts in retirement that are leaving many unprepared for a comfortable retirement. 

In fact, an overwhelming majority of Americans—86%—believe the nation is facing a retirement crisis, while 75% are concerned about their own ability to achieve a secure retirement. The U.S. retirement gapor the difference between Americans' current savings for retirement and that necessary to generate a desirable income from retirementis estimated at between $6 trillion and $14 trillion. 

Retirement security is challenged by a number of factors:

  • Decline of traditional pension plans: For prior generations of retirees that were fortunate enough to be covered by an employer-sponsored retirement plan, the most common type of retirement plan was the traditional pension plan (a plan under which employees were “guaranteed” a specified benefit at retirement based on factors such earnings and number of years worked). While this type of retirement benefit was extremely popular, the long-term risks and financial burdens for the company’s that sponsored them was ultimately too great for many companies. Consequently, we have witnessed a tremendous decline in the overall number of traditional defined benefit pension plans over the past thirty or so years and a rise in defined contribution plans.
  • Increasing life expectancy: Over the past 100 years, we have witnessed an unprecedented increase in life expectancy thanks to a variety of factors including a reduction in infant mortality, increase workplace safety and numerous medial advances. While this increase in life expectancy is certainly something to be thankful for, it also poses retirement security challenges since people are drawing on their retirement savings for longer.
  • Social Security challenges: While Social Security is not likely to disappear at any time in the foreseeable future, the federal program is facing unprecedented financial challenges thanks, in no small part, to the tremendous demographic shift occurring as the baby boomer generation enters retirement (dramatically changing the ration of individuals paying into Social Security vs. the number of individuals drawing benefits).
  • Market uncertainties: We’re also entering a period of uncertainty as it pertains to future market conditions (i.e. a growing number of financial experts are suggesting that future market growth over the ensuing decades may, on average, be appreciably slower than the market growth we have become accustomed to over the past 50-75 years).

The gap is particularly acute among small businesses. Only 14% of small employers offer some type of retirement plan for employees. Furthermore, small business owners over 50—those who would seem most likely to be concerned about retirement security—are even less likely than employees to have retirement plans.


However, the good news is a number of trends are changing the retirement security landscape for small businesses.

  • Fee compression and transparency: Two common trends in the retirement plans market in recent years include the trend toward greater fee transparency (i.e., making it easier for employers and employees to understand the costs involved) and the trend toward lower overall fees (e.g., investment fees and overall plan administration fees).


  • “Automation” of retirement savings: Another trend that is significantly altering the retirement savings landscape is the trend toward increased use of plan automation features. While the traditional approach to employee plan participation has been to require employees to opt in to participate in an employer-sponsored retirement savings plan such a 401(k), there has been a significant increase in recent years in the number of employers who have chosen to reverse the traditional paradigm in an effort to increase plan participation while still affording employees with the ultimate flexibility to choose whether or not they wish to actively participate in an employer-sponsored retirement savings plan. Whereas employees have traditionally been required to make an affirmative election to opt in to participation, many plans nowadays stipulate that eligible employees will automatically be enrolled in the company’s retirement savings plan at a set percentage unless they affirmatively elect not to participate in the plan.