Solving the trillion-dollar retirement crisis: How Human Interest is helping close the retirement gap

For many workers in the United States, the dream of retirement is increasingly out of reach: Only 33% of Americans in the workforce say they’re “on track” with or have achieved their retirement savings goals, according to MetLife. Americans need to collectively add $3.68 trillion to their retirement accounts before retiring to be “on track,” according to the Employee Benefit Research Institute.

Statistic after statistic proves the point: it’s difficult for American workers to save. However, new research from Human Interest indicates that removing hurdles within the retirement industry can more than close the retirement gap between what is currently saved and what’s needed to ensure a comfortable retirement.

Section I: The state of the retirement gap

Historically, small and medium-sized businesses (SMBs) have been overlooked by legacy retirement providers who don’t seem willing or able to meet the needs of today’s workforce. Whether it’s legacy technology or a perceived misconception around the true costs of a 401(k) that prevent SMB employers from offering a plan, the net effect is that millions of businesses and their employees are stuck without access to retirement vehicles.

SECURE Act 2.0, signed into law in late 2022, has more than 90 provisions designed to increase retirement access, including incentives for small businesses to offer plans. Additionally, many states have laws requiring employers to offer retirement savings plans for their employees. While federal and state action tries to address the scope of the problem, we believe more is needed. Despite legislative efforts, many SMBs still face challenges accessing the right 401(k) plan that fits their business.

Many SMB owners have avoided starting a retirement program for employees because the process is often time-consuming, complicated, and expensive. But it doesn’t have to be this way.

Human Interest was built to change the trajectory of the retirement crisis, starting with SMBs. By providing better access and encouraging increased participation in retirement plans, we believe that SMB employee retirement savings could be collectively increased by an estimated $31 trillion. 

To put that amount in perspective, $31 trillion exceeds the entire country’s 2023 gross domestic product. In other words, it’s a sum that would make a massive dent in solving the national retirement crisis.

Section II: Help your employees close the retirement gap

There are more than a few reasons that SMB business owners have hesitated to create retirement plans for their employees: economic headwinds, ambiguous legislation, and a legacy industry that was built around larger businesses, to name just a few. Some of these factors can be controlled by employers, and some cannot. The good news is that employers directly influence two of the largest factors in helping their employees better prepare for retirement: plan access and plan design.

1. Increase access to retirement products

According to AARP data, approximately 56.5 million people lack access to an employer-sponsored retirement savings plan.¹ Employees at SMBs represent the majority (65%) of this group, meaning nearly 37 million SMB employees do not have access to a 401(k). Legacy retirement providers frequently require plan sponsors to wade through dense industry jargon, complicated pricing, onerous set-up, and manual plan management. As a result, SMB owners may be reluctant to start legacy plans.

But we also know many employees expect 401(k) access. Our research found that a workplace retirement plan is the second most-wanted benefit after health insurance. Additionally, a Plan Sponsor Council of America (PSCA) survey of over 500 plans found that nearly 90% of eligible participants contributed to their workplace retirement plans when offered one—reinforcing that when given an opportunity to save, most employees sign up.²

Our analysis shows that providing easy-to-use access to an employer-sponsored plan would mean that 37 million SMB employees without a retirement plan could collectively save $22.5 trillion by the time they reach retirement age (assuming current industry-wide participation and savings rates).

2. Encourage participation through plan design and ongoing education

In addition to providing access, empowering workers to participate and save is vital. One limitation of the PSCA survey is that it more accurately captures behavior at large plans with high-income workers who are more likely to participate and save. According to Vanguard’s How America Saves 2023, employees making less than $30k annually save at lower participation rates. Specifically, between 41% and 58% of eligible employees contribute to their plans.³ As this suggests, SMB employees lack access to retirement plans and may be at a disadvantage when it comes to contributing to their plans.

We’ve seen how legacy providers can deter employees from signing up and saving in their retirement accounts (similar to how they prevent employers from providing them in the first place). These same products may overwhelm savers with analysis paralysis and ask them to choose between dozens of funds with unfamiliar names and unclear fee structures. In other words, legacy plans may be perceived as being reserved for high-earners with a pre-existing level of financial literacy. 

By customizing their 401(k) plans, we believe employers can encourage savings. Leveraging tech-driven platforms that offer flexible plan designs and integrated educational resources can help employers inspire all employees—even first-time savers—to invest in their future. Key features like auto-enrollment, auto-escalation, and employer matching can significantly boost participation rates by making it easier and more rewarding for employees to sign up for their accounts. Additionally, increased access to retirement education tools can help emphasize healthy savings habits, which can result in employees deferring more of their salaries to retirement. 

A recent Human Interest survey found that 14% of respondents gave up enrolling in a plan “because the experience was too hard.” Auto-enrollment can help reduce indecision and counteract behavioral biases by nudging participants toward retirement savings. Auto-escalation can help combat contribution stasis, which occurs when rates remain the same even as income increases. Employees rank a company 401(k) plan match as the most important factor when reaching their retirement goals.⁴ Finally, built-in education and on-demand resources can help reduce burdens. We found that 95% of employees with general financial wellness education enroll in employer-sponsored plans.⁵

Our calculations show that investing in easy-to-use, modern retirement products with optimal plan design and educational tools could save SMB employees an additional $8.9 trillion.

Section III: Solving the retirement savings crisis for all

At Human Interest, we believe that the future of retirement depends on offering modern 401(k) products with affordable, transparent pricing, easy set-up, hands-free administration and plan compliance, optimal plan design, and built-in financial education. One of our guiding principles is to lower the barriers to effective saving by providing plans and experiences that are easy to use so that employees have little reason not to use them. We aim to empower employees across industries to access retirement plans that may have once been limited to high earners. 

Our modern technology has automated many aspects of plan administration and participant transactions, which helps us eliminate costly fees. And we’re continually innovating to find other ways to help support SMBs and their employees. Our product is easy to navigate, has built-in nudges to help participants save, and does not require previous 401(k) knowledge to get started. 

Addressing the retirement savings crisis for American workers, particularly in SMBs, is critical for fostering financial security. By increasing access to retirement plans and implementing effective plan designs, we can empower employees to save and invest in their futures. The potential impact—an increase of $31 trillion in savings—only underscores the urgency of this initiative. As we move forward, SMB owners must embrace modern retirement solutions and prioritize plan design and employee education. Together, we can bridge the retirement gap and ensure a more secure financial future for all workers. Stay tuned for further reports with actionable insights and recommendations to help curb the retirement savings gap.

Methodology

The views represented in the above content are reflective of Human Interest’s opinions and calculations. Human Interest looked at data from 37 million SMB employees without access to a workplace retirement benefit, according to AARP. Using the guidance from the PSCA’s latest survey to identify the most common participation and savings rates, we assumed a 90% participation rate and 10% annual contribution rate to 401(k) with a 5% employer match.⁶ The average annual wages used across the 33.3 million participating employees (90% participation rate of 37 million employees) is estimated to be $50,000, expecting a 3% annual increase throughout a career. Retirement age is 65. Additional assumptions included the average inflation rate (2%) and an average annual return on investments (5%). Does not reflect the performance of any Human Interest account or any actual investment. There is no guarantee that the assumed rate of return will be achieved or that any investing plan will be successful. Investing is subject to risk, including the risk of loss. Ending values do not reflect the effects of taxes, asset fees, or investment expenses; if they did, results will be lower.