If you’re concerned about saving for retirement, you’re not alone. Only 35% of working-age adults have a tax-deferred retirement contribution plan, such as a 401(k) through their employer, according to a new research report from the Institute for Policy Studies. Another 13% have defined benefit or cash balance plans, the report states. Alarmingly, 42% of Americans age 56 to 64 have no savings in a retirement account, according to U.S. Census Bureau statistics.
However, there is one demographic head-and-shoulders above the vast majority of Americans when it comes to retirement savings: CEOs of major corporations like Walmart, Home Depot, and Hyatt Hotels.
More than 20 low-wage employers, including those in the retail and service industries, offer executives tax-deferred funds that will ultimately generate monthly income larger than most of their workers’ annual pay, the report discovered.
What’s the reason for this divide? Sarah Anderson, the Global Economy Project Director and Inequality.org Co-editor and lead author of the Institute for Policy Studies report, said, “The fundamental barrier to retirement security … is that too many Americans are not earning enough to build a sufficient nest egg for their golden years. Of course, raising pay and making health care benefits more affordable would help many employees afford to set more money aside for their retirement.”
Not only do top executives having the means to set aside more money for retirement, but they also have specific tax advantages that help their money grow faster. The chart below shows top corporations, the funds in their executive’s deferred income retirement account at the time of the study, and the income potential of those funds at retirement.
See how these figures compare to the median worker pay within those companies. Note that the median worker pay indicates that 50% of the employees in the company make less than that amount, while half make more.
|Corporation||Funds in Executive’s Deferred Compensation Account||CEO Monthly Retirement Income (projected)||Median Worker Pay||Employees with Zero Balance in 401(k)|
|Walmart||$169 million||>$1 million||$27,136||46%|
|Hyatt Hotels||$91 million||N/A||$40,395||36%|
|Home Depot||$14.8 million||~$90300||$30,100||53%|
The study described how these ‘top hat” plans for top executives work and explained how the tax code favors the wealthiest Americans. “There’s no rational argument for allowing wealthy executives to shelter unlimited amounts of compensation from taxes while ordinary workers have strict limits on their annual 401(k) contributions,” Anderson stated in the report. “Nothing but the power of corporate leaders to rig rules in their favor can explain this double standard.”
In an exclusive email interview with GOBankingRates, Anderson said, “In the richest country in the world, this is a solvable problem. Congress could easily take multiple actions to ensure retirement security for all. For instance, they could raise the minimum wage so more workers can save for their retirement and not have to rely entirely on Social Security.”
Beyond raising the minimum wage, Congress could increase the wage cap on Social Security payroll taxes to fund expanded Social Security benefits, Anderson suggested.
Education surrounding retirement planning is another important step. The SECURE 2.0 ACT mandates that employers with new 401(k)s automatically enroll employees at specific rates. Anderson called this “a well-intentioned first step,” noting that she’s heard many workers complain that their employers didn’t inform them about their 401(k) benefits or clearly explain how they work. “This is particularly a problem for younger and low-income workers in jobs that have high turnover,” she said.
In addition to providing better education surrounding retirement, Anderson suggested that employers could restructure retirement plans to help employees strapped for cash. “Instead of offering matching funds of up to a certain percentage of an employee’s salary they could just contribute that percentage in an employee’s account without the need for a match,” she told GOBankingRates.
Realistically, however, Anderson said she doesn’t believe workers can rely entirely on voluntary actions by employers to fix the system. After all, top executives have very little to gain by offering benefits and wages beyond what’s standard in the market today.
She urges workers to advocate for changes in legislation. “I would like to see more people who are living with the stress of retirement insecurity speaking out to elected officials and in the media through letters to the editor and social media. Their stories can help raise awareness of how this problem undermines the health of our economy and society.”
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