The U.S. retirement system received a C+ grade, ranking 29th out of 48 nations in the Mercer CFA Institute Global Pension Index for 2024. Experts attribute this ranking to issues such as limited retirement plan coverage and significant “leakage” from 401(k) accounts before retirement. According to data from the U.S. Bureau of Labor Statistics, as of March 2024, only 72% of private-sector workers had access to a retirement plan, and just 53% participated.
“This means there are a lot of people who have no retirement plan at all,” said Christine Mahoney, global retirement leader at Mercer. In contrast, countries like the Netherlands cover nearly all workers, contributing to their top-ranking status. The term “leakage” refers to the premature withdrawal of retirement savings, which is a significant issue in the U.S. American workers can withdraw their 401(k) savings when they change jobs.
According to the Employee Benefit Research Institute, about 40% of workers who leave a job each year tap into their 401(k) savings prematurely. A separate study from 2022 found that 41% of Americans who left their jobs from 2014 to 2016 withdrew at least some of their 401(k) funds, with 85% draining their accounts entirely.
U.S. 401(k) leakage issues persist
For many older Americans, Social Security is the primary source of retirement income. Data from the Social Security Administration indicate that approximately nine out of ten people aged 65 and older receive Social Security benefits. These benefits are generally progressive, meaning lower earners replace a larger share of their pre-retirement income compared to higher earners.
However, the minimum benefit is lower than that provided by public retirement programs in countries like those in Scandinavia. Policymakers are taking steps to address these challenges. Seventeen states have implemented auto-IRA programs to reduce the retirement plan coverage gap.
These programs require employers who do not offer retirement plans to automatically enroll workers into a state-managed plan. Additionally, recent federal legislation known as Secure 2.0 aims to improve the retirement system by making more part-time workers eligible for 401(k) plans and increasing the dollar threshold at which employers can cash out balances for departing workers. Efforts like these are crucial for addressing the weaknesses in the U.S. retirement system and improving its global standing.
