Ideas for Improving lagging retirement savings for lower- and moderate-income workers

[Cynthia Van Bogaert]

Hello, I am writing this time as a member of the Retirement Reform Group, an informal, nonpartisan group of active and retired employee benefits attorneys working to address lagging savings for lower- and moderate-income workers.  If you are interested in this issue (and I hope you are), our website is: retirementreform.org. 

Members of the Retirement Reform Group participating in the American College of Employee Benefits Counsel Annual Meeting Education Program in San Diego, CA (October 10, 2026) are pleased to share handouts prepared for the meeting. While the seminar itself is not open to the general public, the following materials are available on our webpage:
- The Urgent Need and Incredible Opportunity to Expand Retirement Coverage through Efficient Plan Design (Richard Shea)
- The Challenges and Promise of Lifetime Income in a Defined Contribution World (Norman Stein)
- The IRA Protection Gap: Missing ERISA Safeguards, Rollover Vulnerabilities, and Paths to More and Safer Retirement Savings (Phyllis C. Borzi, Cynthia Van Bogaert)
- Improving Access to Non-Conflicted Retirement Information for Individuals and Small Employers (Maria O'Brien, Mark Iwry/Matthew I. Whitehorn, Lisa Germano)
-Why Aren’t They Saving? Real Plan Design and Demographic Barriers for Lower- and Moderate-Income Workers (Lisa M. Gomez)

We invite policymakers, practitioners, and other stakeholders interested in improving lagging retirement savings for lower- and moderate-income workers to access these resources here: https://retirementreform.org/resources/ under the Presentations and Materials section. 

Again, I am not providing legal or tax advice.  These are for informational purposes only.  You may share them with others.  Note that the Retirement Reform Group is limited to Fellows of the American College of Employee Benefits Counsel, but is not affiliated with the College.

If you have ideas about problems and solutions you see in your practice, I would love to hear your thoughts.

Cindy Van Bogaert 

Member, Retirement Reform Group

[ESOP Guy]

At this link the National Center for Employee Ownership (NCEO) has a study (about half way down the webpage) of their study that shows employee owned company's lower income employees have larger balances than non-employee owned industry peers company employees with same income. 

Sorry, I am a true believer in employee ownership and ESOPs after working in the industry for around 30 years.  But data like what they have says policies that support ESOPs and other employee ownership is good for all employees including lower income employees. I don't know if this conference had people from organizations like NCEO and the ESOP Association but I can tell you the NCEO's staff desires to talk to anyone who is willing to listen on why they think the evidence proves ESOPs are good for employee retirement security. 

 

https://www.nceo.org/research/research-findings-on-employee-ownership

 

[Paul I]

I agree with @ESOP Guy's observations about the positive impact of ESOPs for all employees, although ESOPs are not a favorite type of plan for many entrepreneurs and private equity investors.  ESOPs for LLCs do seem to attract more attention now from these groups.

The biggest challenge to improving retirement savings for low-to-moderate income workers is their not having discretionary income that can be directed into retirement savings.  The middle class demographic is shrinking while both the upper and lower classes are both expanding (hence the common graphic of a K-shaped demographic).

With a national debt now exceeding $40 trillion, there likely is little appetite for programs or solutions at the national level.  Many business owners who are amenable to trying to increase employee retirement savings are unlikely to voluntarily raise wages and hope employees will "do the right thing". 

Given the types of plans that exist today, cash balance plans and defined benefit plans are the best bet for providing more affordable retirement income to low-to-moderate income employees.  This is a different from focusing on savings.  

[QDROphile]

Paul identifies the issue, but does not connect the dots with respect to ESOPs. The positive aspect of ESOPs for lower income employees is that they typically increase the employee's income via nondiscretionary increments to the ESOP accounts. That works because of the juice that the tax code injects into ESOPs that can improve savings for employees if the owners actually follow the spirit of the law. There are many ESOP success stories. There are also lots of ways to undercut the intent of Mssrs. Kelso and Long. The implementation of an ESOP can be accompanied by a reduction in nonelective retirement plan contributions or in collective bargaining by trading reductions in other income and benefits. The "primary benefit" requirement for ESOPS is quite often just a joke. Then there is the risk of a nondiversified retirement portfolio. There are also lots of ESOP failure stories.

[Cynthia Van Bogaert]

On 9/17/2026 at 5:39 AM, ESOP Guy said:

At this link the National Center for Employee Ownership (NCEO) has a study (about half way down the webpage) of their study that shows employee owned company's lower income employees have larger balances than non-employee owned industry peers company employees with same income. 

Sorry, I am a true believer in employee ownership and ESOPs after working in the industry for around 30 years.  But data like what they have says policies that support ESOPs and other employee ownership is good for all employees including lower income employees. I don't know if this conference had people from organizations like NCEO and the ESOP Association but I can tell you the NCEO's staff desires to talk to anyone who is willing to listen on why they think the evidence proves ESOPs are good for employee retirement security. 

 

https://www.nceo.org/research/research-findings-on-employee-ownership

 

Dear ESOP Guy,

Thanks for sharing this link and your thoughts.  I think that every employer has an opportunity to think about how the company plan design is affecting LMI workers and to think about how their workers will fare in retirement. 

I have some older experience with ESOPs so my knowledge is not current, but perhaps some of these ideas can be adopted by more employers.   Find ways that to encourage that ESOPs might be designed to: 

-have the broadest inclusion of employees: no hours or years of service or other exclusion to limit coverage;

- provide for allocation based on fixed flat dollar amounts per person regardless of compensation;

- provide a path upon termination of employment to another qualified plan covered by ERISA versus a lower-protection IRA;

- avoid incorporating small account involuntary transfers to IRAs;

- address diversification;

- provide financial and retirement education.

These are my thoughts and not necessarily those of others in the Retirement Reform Group.  These are not tax or legal advice and are provided for informational purposes only.

Thanks 

Cindy

[Cynthia Van Bogaert]

On 9/17/2026 at 8:06 AM, Paul I said:

I agree with @ESOP Guy's observations about the positive impact of ESOPs for all employees, although ESOPs are not a favorite type of plan for many entrepreneurs and private equity investors.  ESOPs for LLCs do seem to attract more attention now from these groups.

The biggest challenge to improving retirement savings for low-to-moderate income workers is their not having discretionary income that can be directed into retirement savings.  The middle class demographic is shrinking while both the upper and lower classes are both expanding (hence the common graphic of a K-shaped demographic).

With a national debt now exceeding $40 trillion, there likely is little appetite for programs or solutions at the national level.  Many business owners who are amenable to trying to increase employee retirement savings are unlikely to voluntarily raise wages and hope employees will "do the right thing". 

Given the types of plans that exist today, cash balance plans and defined benefit plans are the best bet for providing more affordable retirement income to low-to-moderate income employees.  This is a different from focusing on savings.  

Dear Paul I.,

I think you make thoughtful points.  I hope you keep engaging with ideas of plan designs that can help improve retirement savings for LMI workers.  

Thanks, Cindy

[Cynthia Van Bogaert]

On 9/17/2026 at 12:54 PM, QDROphile said:

Paul identifies the issue, but does not connect the dots with respect to ESOPs. The positive aspect of ESOPs for lower income employees is that they typically increase the employee's income via nondiscretionary increments to the ESOP accounts. That works because of the juice that the tax code injects into ESOPs that can improve savings for employees if the owners actually follow the spirit of the law. There are many ESOP success stories. There are also lots of ways to undercut the intent of Mssrs. Kelso and Long. The implementation of an ESOP can be accompanied by a reduction in nonelective retirement plan contributions or in collective bargaining by trading reductions in other income and benefits. The "primary benefit" requirement for ESOPS is quite often just a joke. Then there is the risk of a nondiversified retirement portfolio. There are also lots of ESOP failure stories.

Dear QDROphile,

Thanks for sharing.   I appreciate you sharing your perspectives.  I think it is important to look at the whole picture and for employers to be given all the pros and cons from a nonconflicted source when choosing a plan design, including the ways that plan design can make the plan more likely to provide a benefit to LMI workers when they are in retirement.  

In case it is helpful to anyone: Here are a Congressional Research Service and DOL report with some general issues: https://www.congress.gov/crs-product/IF13104 and https://beta.dol.gov/research-data/surveys-reports-publications/employee-ownership-initiative-report-congress

Again, this is not tax or legal advice, is not on behalf of any other group or individual, and is only for informational purposes.

Cindy

[FORMER ESQ.]

I'm with @Paul I on this one. It's not really a "supply side" issue. Employers are offering retirement plans, but most of the retirement plans have a heavy employee funding component (e.g., 401(k) plans) and US workers have less and less additional income to save for retirement when they are worried about paying rent/mortgage and buying food. 

[Cynthia Van Bogaert]

9 hours ago, FORMER ESQ. said:

I'm with @Paul I on this one. It's not really a "supply side" issue. Employers are offering retirement plans, but most of the retirement plans have a heavy employee funding component (e.g., 401(k) plans) and US workers have less and less additional income to save for retirement when they are worried about paying rent/mortgage and buying food. 

Dear Former Esq.,

The employee funding burden as well as shifted risk and increasing savings gap are problems we in the retirement field can help address.  I encourage everyone to think about ways to raise awareness and enable solutions.

The steps toward solutions might be varied:

-consumer retirement literacy, including how to optimize savings on a low income that leaves little or nothing after rent/food;

- employer plan design education, on design options that can assist lower paid employees;

- government resources that provide more comprehensive, conflict-free information (not advice) on how to navigate retirement savings; 

- more broad regulatory and law changes. 

Those who assist employers can make them aware of plan design alternatives. Of course, the law still permits the "old" DB model as well as DC models that have robust employer contributions that can be allocated on a per capita basis (vs. per compensation).  Employers that offer plans can offer plans without any age/service minimum to anyone in the controlled group.  Employers that do not offer plans can be provided incentives to offer them.  

An important starting point is for all of the parties to understand the specific problems that lower- and moderate-income worker savings face.  The GAO report on Older Workers:Retirement Account Disparities Have Increased by Income and Persisted by Race Over Time https://www.gao.gov/products/gao-23-105342 is a good resource. Here is an excerpt:

"Disparities between low-income and high-income older workers' retirement accounts were greater in 2019 than in 2007, according to GAO's analysis of Survey of Consumer Finances (SCF) data on households 51 to 64. For example, about one in 10 low-income households had a retirement account balance in 2019 compared to about one in five in 2007, while about nine in 10 high-income households had a balance through the period. For those with a balance, the median balance was higher for high-income households over the period, while any change for the other income groups was not statistically significant. Racial disparities also persisted over the period. A higher share of White households had a balance than those of all other races. Also, White households had about double the median balance as households of all other races."

If you are actively engaged with employers, you have a direct opportunity to help them improve the situation with plan design changes that provide more savings to more lower- and moderate-income workers.   

Thanks for your interest, 

Cindy

 

[Cynthia Van Bogaert]

On 9/18/2026 at 5:10 PM, Cynthia Van Bogaert said:

Dear QDROphile,

Thanks for sharing.   I appreciate you sharing your perspectives.  I think it is important to look at the whole picture and for employers to be given all the pros and cons from a nonconflicted source when choosing a plan design, including the ways that plan design can make the plan more likely to provide a benefit to LMI workers when they are in retirement.  

In case it is helpful to anyone: Here are a Congressional Research Service and DOL report with some general issues: https://www.congress.gov/crs-product/IF13104 and https://beta.dol.gov/research-data/surveys-reports-publications/employee-ownership-initiative-report-congress

Again, this is not tax or legal advice, is not on behalf of any other group or individual, and is only for informational purposes.

Cindy

More resources for those who are interested: A paper, "Repeal Tax Incentives for ESOPs," :https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1517454.  

 

https://gaggle.email/attachments/ag1zfmdhZ2dsZS1tYWlscigLEgRMaXN0GICAiN_piNwIDAsSCkF0dGFjaG1lbnQYgICY_rrUuwkM/khawar_ali-headshot-NR-Scholar-1-300x275.jpeg

The Perils and Promise of Employee Stock Ownership Plans (ESOPs) - Georgetown Center for Retirement Initiatives cri.georgetown.edu

 

Problems with ESOPs pensionrights.org https://gaggle.email/attachments/ag1zfmdhZ2dsZS1tYWlscigLEgRMaXN0GICAiN_piNwIDAsSCkF0dGFjaG1lbnQYgICY_rrUuwsM/favicon.png

 

Pros and Cons of Employee Stock Ownership Plans (ESOPs) investmentbank.com https://gaggle.email/attachments/ag1zfmdhZ2dsZS1tYWlscigLEgRMaXN0GICAiN_piNwIDAsSCkF0dGFjaG1lbnQYgICY_rrU-wgM/apple-icon.png

[ESOP Guy]

Wow this went ESOP negative fast while I was out. 

You want to help low income employees ESOPs really show a positive.  They typically have higher retirement balances than companies without ESOPs. 

https://www.esop.org/infographics/economic-benefits-of-esops-employees-companies.php

I quote the from research found at the link below. 

https://www.nceo.org/research/research-findings-on-employee-ownership#:~:text=S ESOP companies' retirement contributions,to 31% for 401(k) plans.

This 2021 study by the NCEO found that workers at S corporation ESOP companies had more retirement savings and more employer-side retirement contributions both before and during COVID-19, compared to companies offering only a 401(k) plan. S ESOP companies' retirement contributions were 2.6 times that of companies offering only 401(k) plans. Additionally, the vast majority of total contributions to these ESOPs, 94%, were from employers, compared to 31% for 401(k) plans. Controlling for size, industry, and region, the study found that average S ESOP participant retirement balances were $67,000 higher than the comparison group. The study also found evidence that ESOP companies retained or created more jobs during 2020, again controlling for size, industry, and region. 

 

The great part about ESOPs is you have to worry less about if the employees have the income to contribute as the vast majority of ESOPs are fully employer funded and as you can note above they tend to have a 401(k) also.  

 

Research on S Corp ESOPs and how they offer greater benefits.

 

chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/https://esca.us/wp-content/uploads/2022/04/EY-ESCA-S-ESOP-Analysis-2022.04.2257.pdf

 

And yes there are some failures but after 30 years of working on ESOPs my experience is the number of ESOPs clients I have worked on minting millionaires to ESOPs leaving employees in bad shape because of lack of diversification or bankruptcy is no contest.  You can claim selection bias as those companies that do well last the longest to be a client.  But in all seriousness I don't know of anyone who works with ESOPs on a regular basis that doesn't wish their employer wouldn't sell the company to an ESOP.  It is a deal they would gladly take.  In fact that is their one weakness in my mind.  You have to find an owner willing to sell the company to the employees.  

[Paul I]

The original topic is "Ideas for Improving lagging retirement savings for lower- and moderate-income workers".

The challenge is LMI workers do not earn enough to save a meaningful amount for retirement.  For an LMI worker, decisions about prioritizing how to use their income is a zero sum game where increasing retirement savings means decreasing another equally or more impactful expenditure.

Having ideas for improving lagging retirement income for LMI workers is a different challenge.  Almost by definition, the ideas to improve retirement income will need to focus on a funding source that is not solely from the LMI employee's paycheck.  Excluding government resources, this leaves the employer as the most likely funding source to improve retirement income to a meaningful level that is above what an LMI employee can fund through their own contributions.

The retirement income improvement will come from a plan that receives employer contributions.

Match contributions basically provide an incentive to an employee to save at least up to the contribution level that is matched.  This is somewhat effective for moderate-income workers, but not so much for low-income workers.

Defined contribution plans are popular with employers because the provide the employer with a lot of flexibility with respect to funding.  Once the employer contribution, it then often become the responsibility of the employee to make investment decisions hopefully to grow the contributions into a meaningful retirement income. Too often, LMI employees make conservative investment decisions which reduces their potential retirement income.

Defined benefit plans and cash balance plans are administered professionally and are more likely to improve LMI retirement income.  Having a relatively flexible funding schedule, benefiting from mortality, and using professional asset management can help reduce the employer's overall cost over time.

ESOPs are a type of defined contribution plan where the retirement income is based on employer contributions.  They are not savings plans.  As @ESOP Guy notes, well run ESOPs are very successful.  This in part is due to worker identifying themselves as owners, and to worker involvement in decision-making.  Notably, all workers are subject to the same investment performance of the plan assets (aside from diversification provisions), and workers can enhance that performance by making a positive contribution to the success of the company.  I, too, have seen long-term LMI employees become relatively wealthy by having participated in a well-run ESOP.

ESOPs are far from being a one-trick pony answer to improving retirement income, but they should be included in the conversation.

DB and CB are more likely to be embraced by employers.  If the task at hand is to increase LMI retirement income, then there are concepts in some of the defined contribution plan designs that could possibly be adapted to DB/CB plan design. For example, match rates can be higher and decrease as the deferral rate increases.  A DC/CB benefit formula could be similarly structured to be decrease as compensation increases.

Elsewhere, there can be opportunities to constrain the extent to which currently permissible plan designs can discriminate in favor of high-paid employees.

Let's help @Cynthia Van Bogaert by being outlandishly creative.