Fixing the U.S. Retirement System: A Q&A

The Trump administration’s new policy is a first step in the right direction.

What exactly is the problem with the American retirement system?

The issue is certainly not that politicians neglect retirees as a group, or that policymakers are unwilling to use public money to help them. The United States already heavily subsidizes retirement savings. In 2019, federal income and payroll tax expenditures related to retirement savings totaled $276 billion, according to the most recent report that offers this breakdown from the Congressional Budget Office.¹

The real problem is that the existing retirement system is badly designed to benefit the workers and retirees who most need help.

Retirement tax breaks from the government, primarily through 401(k) and similar plans, disproportionately benefit the highest-earning households. The primary reason for this disparity is not that lower-income workers choose to save a smaller share of their income, but rather that so many of them lack access to an employer-sponsored retirement savings vehicle in the first place.

The problem is obvious when simply viewing the key stats, starting with the outcomes…²

• Households in the top 20 percent by income received more than 60 percent of the benefits from “exclusions for pensions and retirement savings accounts” (the CBO category that represents the foregone taxes collected because of retirement program tax breaks).

• The bottom 40 percent of households by income together received less than 5 percent of the benefits.

• Within the bottom 20 percent of households by income, four out of five of them received none of these benefits at all.

… and then looking at the data on access to retirement accounts:

• Roughly 54 million workers, or about 47 percent of all full-time and part-time private-sector workers between the ages of 18 and 65, are not offered any retirement plan at work.³

• Among full-time private-sector workers, 42 percent lack access to an employer-sponsored plan. The situation is even worse for part-time workers: 79 percent have no access to an employer-sponsored plan.

• Nearly 80 percent of workers in the lowest earnings decile lack access, compared with just 18 percent in the highest decile.

• The income disparity is accompanied by racial and ethnic, generational, and rural vs urban disparities. Black workers, young workers, workers in small firms, and those in rural communities, for example, are all significantly less likely to have access as well.

For more on the methodology behind these estimates, including data on how many workers lack access to an employer match, see our earlier detailed analysis.

A New Approach

Closing the access gap and reducing the inequality in retirement savings will be impossible without first building the infrastructure that makes it easier for workers to save.

The federal government has started taking the necessary first steps, but there is confusion about what exactly has been announced, the likely effects of these new policies, and what policymakers should do next.

Here we attempt to answer some of the most common questions.

What just happened?

On Thursday, April 30th, the White House issued an executive order to expand retirement plan access for private-sector workers without employer-sponsored coverage.

Specifically, the government is creating the infrastructure and parameters for financial institutions to offer these workers a retirement product similar to the Thrift Savings Plan (TSP), which is the retirement vehicle currently available to federal employees and members of the military. The TSP offers low-fee index funds that invest in equities, bonds, and Treasuries.

In addition, the federal government will match half of each eligible worker’s contributions to this plan up to a limit of $1,000 (or 50 percent of the first $2,000 contributed by the worker).

How will workers know which plan they should choose?

These new products will be listed on TrumpIRA.gov, along with an explanation for how eligible workers can claim the Saver’s Match. The listed plans will be vetted by the Treasury Department to ensure their offerings align with those offered by the TSP. The plans will also be required to have no minimum contribution or balance.

In what ways will this new retirement policy help workers?

The first way is simply that more workers will have access to a tax-advantaged retirement plan. Retirement plans are incredibly effective wealth-building tools,⁴ but not every employer offers them, leaving many workers — especially low-income workers — excluded from this path to financial security in old age.

The second way this policy will help workers is through the match, which will boost each worker’s annual retirement contribution.

Where is the money for the match going to come from?

We need to take a step back to explain the answer.

The Saver’s Credit, which has been available to taxpayers since 2002, is a nonrefundable tax credit of up to half an individual’s contributions to a 401(k) or other retirement vehicle. It is capped at $1,000 per year. That it is nonrefundable means that many low-income taxpayers cannot get the full credit because their overall tax liability is too low (less than $1,000).

In 2022, Congress passed the Secure 2.0 Act, which replaces the Saver’s Credit with something called the Saver’s Match starting in 2027. The Saver’s Match is effectively a fully refundable tax credit of up to $1,000 (matching up to half the eligible taxpayer’s first $2,000 contributed to a retirement plan) to be deposited directly into an individual’s retirement account.

The Trump administration is making it possible for eligible workers who currently lack an employer-sponsored retirement plan to also have access to the Saver’s Match through their new retirement account. Thus, according to the administration, this matching benefit for its new plan has already been passed by Congress under the Secure 2.0 Act, and no new legislation is needed.

So is every worker who gets access to this new retirement plan eligible for the $1,000 match?

No, because the Saver’s Match is targeted by income. The only workers who are eligible to receive the full $1,000 match are married couples filing jointly who make at or below $41,000; heads of household who make at or below $30,750; and single filers making at or below $20,500.

If a worker makes more than that, given their filing status, they aren’t necessarily out of luck. They may fall into phase-out ranges. The Saver’s Match phases out linearly over modified adjusted gross income ranges of $41,000 to $71,000 for joint filers; $30,750 to $53,250 for heads of household; and $20,500 to $35,500 for single and other filers.

When does the new retirement policy take effect?

The program will launch in 2027. According to the executive order, the Treasury Department must also launch TrumpIRA.gov by January 1, 2027.

Can’t workers who don’t have access to an employer-sponsored retirement vehicle just set up their own retirement accounts, and access the Saver’s Match that way?

Yes. But what we know about low-income workers is that they overwhelmingly tend not to because of the administrative burden.⁵ Setting up such a plan on your own isn’t easy. The Trump administration is proposing to take on the administrative burden so that workers don’t have to. The new accounts will be offered by private providers and overseen by the Treasury Department.

And workers will then be automatically enrolled in those accounts?

No. Auto enrollment would require new legislation from Congress. So would increasing the matching amount beyond $1,000 and adding a default contribution rate.

How many workers will end up benefitting from the Trump administration’s new retirement plan?

We’ll give you the topline numbers first:

• 54 million total workers will become eligible for a new retirement plan.⁶

• Of those 54 million, 11.5 million will be eligible for the full Saver’s Match.

• Of those 54 million, another 14.6 million will be eligible for a partial Saver’s Match.

Here’s how the numbers break down by single, married filing jointly, and head of household:

And here’s how the math works. (If these details don’t interest you, feel free to skip ahead to the next question.)

As already noted, roughly 54 million workers currently lack access to an employer-sponsored retirement plan. Conceivably, all of them will be eligible for the new retirement plans created by the Trump administration.

Not all of them, however, will be eligible for the Saver’s Match of up to $1,000. This is where the calculations become a little complicated.

We can start by looking at how many workers will be eligible for the full Saver’s Match regardless of whether or not they already have access to a retirement plan. Using the Saver’s Match income thresholds and data from the Survey of Income and Program Participation (SIPP), we estimate that 15.1 million workers would qualify for the full 50 percent match.⁷ This includes full-time, part-time, self-employed, and government workers.

But only 3.5 million of these workers currently have a qualifying retirement account. What this means is that because of the Trump administration’s plan — here comes the answer — 11.5 million workers will have new retirement accounts through which they can receive the full Saver’s Match, or roughly 8 percent of workers.

Having done a similar calculation for workers with incomes in the phase-out range, we estimate that another 14.6 million workers will have new accounts through which they can receive a partial Saver’s Match.⁸

Why is President Trump doing this?

The president noted in the State of the Union speech in February that half of working Americans lack access to a retirement plan with matching employer contributions, pulling directly from work we did here at EIG.

What effects can we expect from the Trump administration’s new policy?

It’s impossible to know exactly how many workers will actually start saving more for retirement once they have access to these new accounts.

For the roughly 26 million workers who will gain new access to either the full or partial Saver’s Match, however, it is very likely to induce more savings. Survey evidence shows that interest in participation rises sharply once workers understand that a match is available. We also know from the federal Thrift Savings Plan that introducing a match increased employee participation by roughly 22 percentage points.

You mentioned that to automatically enroll these workers, increase the match, or set a default contribution rate, Congress would have to pass new legislation. Is someone writing that legislation?

It has already been written! The Retirement Savings for Americans Act (RSAA) is a bipartisan piece of legislation that was built on the policy recommendations of a 2021 EIG white paper by economists Teresa Ghilarducci and Kevin Hassett, who is currently President Trump’s Director of the National Economic Council. The RSAA was most recently reintroduced by Representatives Lloyd Smucker and Terri Sewell and Senators John Hickenlooper and Thom Tillis in April of 2025.

Like President Trump’s current plan, the RSAA would give workers without employer-sponsored retirement plans access to a new retirement vehicle similar to the federal Thrift Savings Plan, with similar investment options and employee ownership of the plan. But the RSAA would also go much further and offer to workers:

• Automatic enrollment in their new plan

• A default contribution rate set at 3 percent of a worker’s income

• Matching contributions of up to 5 percent

In short, the RSAA would extend to low-income and moderate-income families the same opportunity to build wealth that higher earners have long enjoyed.

Can you quantify the likely benefits for workers if the RSAA is passed?

Differences in wealth accumulation across households are driven not only by income but by unequal access to employer-sponsored retirement plans and participation in asset markets like equities and housing. Low-income households participate in these wealth-building systems at far lower rates, and that gap compounds over time.

What makes the case for a policy like the Retirement Savings for Americans Act more than a matter of fairness is the scale of the projected economic benefits.

Economists Pavel Brendler and Moritz Kuhn have estimated that every dollar of public spending on RSAA would result in roughly $2.40 in worker contributions and investment returns for workers and their families.

Younger workers would eventually enjoy the biggest gains, as they benefit most from time and compounding. According to Brendler and Kuhn, enacting RSAA today would amount to roughly $157 billion in additional accumulated retirement wealth, measured in 2024 dollars, for the nearly 5 million American households currently aged 25–29 by the end of their 40-year working life.

Simulation work from RAND shows that the RSAA would “enable the lowest earners (those who consistently earn in the bottom 10 percent of the earnings distribution) to save approximately $126,000 over a 40-year working career.” A worker at the median of the earnings distribution could approach $585,000 in savings.

If a lot of workers end up with tax-advantaged retirement accounts, and many of them are also getting a 5 percent match via public funds, won’t the policy have a big fiscal cost? Has anyone modeled that?

Yes — and in fact the fiscal effects over the long run are positive, not negative. Modeling from RAND suggests that implementing RSAA could generate more than two trillion dollars in net federal and state savings over forty years, largely because higher retirement assets reduce future spending on asset-tested programs such as Supplemental Security Income and Medicaid.

Okay, so what happens now?

It will be up to Congress whether to enact the remaining core elements of RSAA, such as auto enrollment and expanding the match. We hope it does. Policies that are fiscally responsible, address a big lingering inequality, and offer a boost to those who need it most are rare. With bipartisan support already on the table and key figures in the administration enthusiastic about the proposal, the moment for legislative action on retirement is now.

1. The CBO does not always do an explicit analysis of how tax-advantaged retirement savings are broken out across the income distribution, but in 2019 we got a window into how the system works. We offer tax advantages for savings for pension plans and retirement accounts. Those tax advantages cost us money through the exclusion of collected income taxes and payroll taxes. In 2019, the CBO reported that tax expenditures from the exclusion and deferrals for contributions and earnings related to pensions and retirement plans totaled $276 billion, with $202 billion coming from income tax expenditures and $74 billion from payroll tax expenditures.

2. “The Distribution of Major Tax Expenditures in 2019”, Congressional Budget Office

3. Using the U.S. Census Bureau's Survey of Income and Program Participation (SIPP) and the Current Population Survey Annual Social and Economic Supplement (CPS ASEC), accessed through IPUMS. The 54 million figure is an ASEC-calibrated estimate: within each cell defined by age group, work status (full-time or part-time), filing status, and earnings band, the SIPP share of workers lacking access to any employer-sponsored retirement plan is applied to the corresponding ASEC-weighted count of private-sector employees. This yields 53.7 million workers without access (40.6 million full-time and 13.1 million part-time). The denominator is 113.2 million private-sector employees ages 18 through 65 with positive annual earnings (96.6 million full-time and 16.6 million part-time), weighted using the ASEC supplement weight. A worker is classified as lacking access when the worker reports no employer 401(k)-type plan, no employer-sponsored IRA, and no employer pension in SIPP's retirement-coverage module. We explain our methodology further in our earlier analysis of retirement data.

4. According to the CBO analysis of 2022 data, the combination of retirement assets and accrued Social Security benefits accounted for more than 40 percent of household wealth.

5. When saving requires an active, self-initiated decision, like choosing a provider, opening an account, and making contributions, participation falls sharply, especially among lower-income households. Inertia, low salience of incentives, and limited financial confidence all materially harm the long-run savings of low-income workers without access to an employer-provided retirement plan. See “Saving Incentives for Low- and Middle-Income Families: Evidence from a Field Experiment with H&R Block” by Duflo et al. (2006), “The power of suggestion: Inertia in 401(k) participation and savings behavior” by Madrian and Shea (2001), and “Active vs. Passive Decisions and Crowd-Out in Retirement Savings Accounts: Evidence from Denmark“ by Chetty et al. (2014).

6. Note, this estimate is likely a lower-bound as it is restricted to employed workers between the ages of 18 and 65, excluding government and self-employed workers. The Saver’s Match counts actually apply to a broader population.

7. Estimates come from the Survey of Income and Program Participation 2024 public-use file (U.S. Census Bureau), weighted to the civilian noninstitutional population. The sample restricts to individual workers age 18 and over, excludes dependents and full-time students using SIPP proxies, and includes private-sector, government, and self-employed workers. Income eligibility is tested against the 2027 AGI thresholds. SIPP does not report tax-return adjusted gross income directly, so we proxy AGI with calendar-year personal income, constructed by summing observed monthly TPTOTINC across all twelve reference months for each person; for the small share of respondents observed for fewer than twelve months, the partial-year sum is scaled to a 12-month basis. Importantly, these estimates use the 2024 SIPP income values and are not inflation adjusted to match a projected income profile in 2027. This means these are likely high estimates on the count of income eligible workers. Above-the-line adjustments to AGI are not applied, so the eligible counts reported here are lower bounds on the true AGI-defined eligibility. Married-filing-jointly filers are evaluated against spouse-pair joint income, constructed by joining each worker to their spouse via the EPNSPOUSE pointer and summing the two annualized personal-income values; workers filing Single, Head of Household, or Married Filing Separately are evaluated against personal income alone. Married-filing-jointly workers with unresolved spouse pointers fall back to personal income. A qualifying retirement account is defined as ownership of a 401(k), 403(b), Thrift Savings Plan, traditional IRA, or Keogh account; defined-benefit pensions are not qualifying accounts for the match. Counts are reported at the individual-worker level, so each adult in a married couple is counted separately.

8. Our SIPP-based counts are not directly comparable to the figures reported in Copeland (2024), which reported 83.8 million tax filers with income below the eligibility thresholds, 69.0 million tax filers with W-2 wage income below the thresholds, and 21.9 million individuals who contributed to a qualified retirement plan in the reference year. Three definitional differences drive the gap. First, EBRI’s 83.8 million and 69.0 million apply only the income test to a filer universe that includes dependents, full-time students, and individuals without earned income; our 38.5 million excludes each of those groups. Second, EBRI uses tax-return AGI from IRS Statistics of Income tabulations for 2018, while we proxy AGI using calendar-year personal income, built by summing observed monthly TPTOTINC across all twelve reference months in the SIPP 2024 Wave 1 sample (income year 2023); nominal-income growth between 2018 and 2023 has lifted many filers above the statutory 2027 thresholds, narrowing the eligible population relative to the EBRI vintage. Third, EBRI’s 21.9 million measures retirement-plan contributions in the reference year while our analysis measures ownership of a qualifying account among eligible workers. Our estimates are on an individual-worker basis for income year 2023; EBRI’s estimates are on a tax-filer basis for 2018. A filer-basis reaggregation of the SIPP estimates, which collapses married couples to a single filing unit, produces 33.4 million any-match eligible, 13.4 million full-match eligible, and 3.1 million full-match-and-account filers. We run a similar exercise using the same income-threshold and worker-universe rules in Current Population Survey Annual Social and Economic Supplement 2025 (CPS ASEC 2025), which covers income year 2024. Those findings align well with the numbers reported in our analysis of SIPP data lending support for these updated numbers. The full analysis can be seen on Github here: link.