Structural Barriers to Retirement Saving for Lower-Wage Workers: Pitfalls of the Secure 2.0 Act

Background and Purpose: The SECURE 2.0 Act signed into law in December 2022 reshaped the retirement savings landscape in keys: expanding auto-enrollment and auto-escalation of employee contributions in defined contribution plans (DCPs), relaxing hardship withdrawal rules, and enabling pension-linked savings accounts (PLESAs). These provisions may boost DCP enrollment and contributions among workers with DCP access through their employer (Choi et al., 2004). However, lower-wage workers have less access to DCPs (Bureau of Labor Statistics, 2024) and incentives for employers to begin offering DCPs extend only to small businesses. Replacing the non-refundable Saver’s Credit with the Saver’s Match contribution starting in 2027 may help lower-wage workers without DCP access save for retirement. This study seeks to understand how retirement savings among lower-wage workers may be affected by the SECURE 2.0 Act.

Methods: Data for this study are from Wave Two of the Workforce Economic Inclusion and Mobility (WEIM) project survey administered in June 2024 with a nationally representative sample of U.S. households with lower-wage workers from the AmeriSpeak panel (N=1,674). A survey module included a set of questions concerning workers’ DCP access, retirement savings, savings behavior, and responses to certain SECURE 2.0 Act provisions.

Preliminary Results: Over two-fifths (41%) of workers had nothing saved for retirement, only 17% had at least $50,000 in retirement savings, and 43% lacked a retirement account. While the enrollment (82%) and contribution (90%) take-up rates for DCPs were high, only 61% had access to a DCP through their employer. In line with prior research (Choi et al., 2024), less than half (41%) of employees would not opt-out of auto-escalated contributions and 39% were unsure what they would do. Employee contributions closely tracked employer match rates and participation in PLESAs would be higher if employers offered matches. Over half (57%) of workers said they would claim the Saver’s Match, yet interest was much higher among those who are already saving for retirement.

Conclusions and Implications: Among lower-wage workers, those who already have DCP access and who already have retirement savings are more likely to benefit from various SECURE 2.0 provisions. With uncertainty around opting-out of auto-escalation, employers should consider indexing escalating contributions to age. Workers were generally interested in PLESAs and claiming the Saver’s Match, yet lower-wage workers who lack DCP access and do not have an existing retirement account(s) will experience considerable friction (Herd & Moniyhan, 2019) in claiming the Match. Given variation in the labor market with respect to DCP access that disadvantages lower-wage workers, SECURE 2.0 may attenuate these disparities which should be mitigated on the back end with Social Security Retirement program reforms.