American Workers May Get a New Way to Save for Retirement

July 25, 2018

US Senator Jeff Merkley (D-OR) unveiled new legislation last week that would give American workers without a workplace pension plan access to a new, universal retirement savings plan.

The American Savings Act (ASA) would give workers access to the same plan that federal workers and members of congress currently enjoy.

How It Works

The plan for the ASA would be for employers to automatically put 3% of earnings from each paycheck into an individual account. Contributions could be adjusted to as low as 2% of income or as high as $18,000 per year.

The ASA would have the same investment options and low management fees as federal employees get through the Thrift Savings Plan (TSP).Employee contributions would be sent to the federal government together with withholdings.

Contributions to an ASA would be tax-deductible and flexible with other savings vehicles. Plan participants would be able to rollover any previous Individual Retirement Accounts (IRA) into their ASA or roll their ASA funds into an employer-sponsored 401(k) or 403(b) plan. An independent board of directors would be appointed to manage the investment of the funds.

According to the Center for American Progress Action Fund, which authored the original plan, the benefits of the ASA are that it’s:

  • Universal: Part-time, full-time employees, and contract employees would be eligible regardless of employer size.

  • Portable: The ASA would follow employees across their careers with multiple employers.

  • Simple: There is no administrative cost to employers and no paper work as employees move positions and jobs.

  • Personal: Contributors would be able to choose from a number of straightforward investment options.

Workers who don’t have an employer provided plan would be auto-enrolled in the ASA, but would be able to opt-out entirely. Auto-enrollment with an opt-out provision has been shown to be effective at raising participations rates. People are more likely to participate in a savings or pension plan with auto-enrollment and opt-out than with a simple opt-in approach.

The ASA could prove particularly attractive to younger Americans, who are increasingly unlikely to have an employer-sponsored pension and who will switch jobs multiple times throughout their careers.

According to the Harvard Business Review, the median retirement account balance of Americans between 40 and 45 years of age is only $14,500. Furthermore, according to the US Bureau of Labor Statistics, only 15% of American workers participate in a defined benefit pension and only 44% participate in any kind of workplace retirement plan, which includes defined contribution plans and employer-sponsored 401(k)s.

The National Institute on Ageing (NIA) is a university-based think tank focused on leading cross-disciplinary research, thought leadership, innovative solutions, policies, and products on ageing. The NIA’s mission is to help governments, health care systems, pension plans, businesses, and Canadian families to best meet the challenges and opportunities posed to ageing Canadians and by an ageing demographic. Follow us on Twitter and sign up for our mailing list.

By Michael Nicin, Executive Director, National Institute on Ageing | Email:

Allan McKee