Q&A Karen Andres: Creating a More Inclusive Savings System

Karen Andres is project director for the Retirement Savings Initiative at the Aspen Institute Financial Security Program and is an influential voice to policymakers on shaping the future of family finances.

Her team regularly releases reports on these issues in the United States, with the latest “Moving from Experimentation to the Mainstream: Policy Options to Automate Workplace Emergency Savings” published in September 2021.

We spoke with Karen on the phone recently for her insights on the top policy issues facing retirement today and some of the innovations and learnings around savings that have come out of the pandemic.

The views and opinions expressed in this interview do not necessarily represent the policies and positions of Guideline. The content of this interview is for informational purposes only, and should not be interpreted as tax, investment, financial, or other advice.

Guideline: What’s top of mind for your team at Aspen around retirement security?

Karen Andres: People need a variety of different kinds of savings in their lives to meet different needs. As we think about an inclusive savings system, two big needs are emergency savings and, obviously, retirement savings. We know the two are connected. In fact, we published research with Morningstar, DCIIA, and NORC at the University of Chicago from the pandemic, which showed emergency savings were deeply protective of retirement savings when people needed to withdraw because of their income-loss during COVID.

It was a powerful and important moment to understand how, in crisis, people would rely on those two different kinds of savings. Given that connection to retirement savings, emergency savings has been an issue for us for some time. How do you automate emergency savings from the paycheck in the workplace in the same way that we've seen be successful in retirement savings?

Increasingly, we’re also working on how we can build a more holistic, lifelong savings system. For us, that not only means emergency and retirement savings, but also what we call “early assets” – the collection of at-birth or early accounts and tools like baby bonds, child savings accounts, 529s, and more. As David John and I wrote in The Future of Building Wealth, a book recently co-published by the Aspen Financial Security Program and the Federal Reserve Bank of St. Louis, our current defined contribution retirement savings system can serve as the basic infrastructure for a portable, flexible, multipurpose savings platform.With innovations and modifications it can help people not only build savings, but leverage capital markets to turn those savings into wealth.

Right now, though, there is real action and traction on meaningful expansion of access for retirement savings. There are roughly 50 million American workers who don't have access to retirement savings at work. There's broad support for expanding access via a federal automatic enrollment requirement, requiring employers over a certain size to offer access or to automatically enroll their workers into a workplace retirement-savings program. It’s exciting to see that support reflected in the current reconciliation bill, which includes key access expansion provisions.

Over the coming months, I know we’ll have a lot of conversations about expanding retirement savings access, as both market and policy leaders figure out how to make an automatic enrollment requirement work. Retirement and savings are one of those really cool areas where it's a function of both public and private market solutions, and it’s going to take cross-sector innovation and collaboration to produce the savings outcomes that lower income Americans need.

Guideline: Let’s say the question of access is solved, what comes after that?

We have to also look at how we can help ensure adequacy. Access to an account is just one step. We know that access alone is not going to deliver a sufficient retirement savings balance for American households. We have to be honest about the fact that a lack of routinely positive cash flow is a significant driver of savings gaps and wealth gaps.

I think our field is getting more and more comfortable saying that out loud – and it’s incredible that Savers Credit refundability and expansion have been proposed, given what a powerful tool that would be to building retirement savings balances for low income households, women, and people of color. But we have to do this in concert with expanding access. We have to—it's table stakes.

Guideline: To build on your point about income and the savings and wealth gaps, given what’s happening around labor, wages and government aid, how are those things impacting the savings conversation?

The Child Tax Credit is the most substantial anti-poverty move in decades. The data is just starting to emerge about what people are doing with that money. Right now people are paying for essentials. They’re also paying off debt with that money. Should this tax credit be made permanent?

I think it would be an important goal for all of us who care about household stability and financial security to ensure that households have some amount of unrestricted cash flow that complements and helps smooth their often spiky labor market income. Then, after basic needs get met, bills get paid, and debt gets paid off (depending on the size of the debt) is there a savings opportunity? Is there an opportunity for households to begin to sock a little bit of that away for the future, whether that's emergency savings or retirement savings or goal-based savings, like 529 savings or saving up for a down payment? We think there’s a huge opportunity to harvest some excess free cash flow to create a savings cushion, and early indications are that there are households doing just that.

You could say this reasoning would hold for wage increases across the board. We know Americans have pressing financial needs. For instance, housing costs are at an all-time high in terms of expense, whether rent or home ownership. But we also know that when given the opportunity—people want to save and they do save, even at low income levels. You see that in state auto-IRA plans. I think there is a moment where we want to make sure that, as we see support for households increasing, whether it's the Child Tax Credit or something else, everybody has the opportunity to save.

Guideline: It’s really interesting to hear you mention 529s as goal-based saving. What else are you hearing about for savings?

There's a whole world of child savings accounts, development accounts, and ideas like baby bonds or Roth-at-birth, and many experts have been innovating in that space for years. Like retirement, these “early assets” tools draw on the power of the markets to build balances to support someone through their lifetime.

Give a child an account at birth, seed it with money, make ongoing contributions, and so when someone reaches 18, there's a meaningful pot of money that they can do something with.

There is a big bucket of savings accounts that are neither emergency savings nor retirement savings. You could put 529s spiritually in that category. However, there are things that can be done to the 529s to make them more inclusive, less restrictive, to lower the barriers to using them and to lower the bar to using the money once you've accumulated it.

With the cost of higher education, there are a lot of different ways that a young adult might want to leverage a pot of money whether it's college, whether it's vocational school. But what if it's starting a business? What if it's doing something totally different that is still a valid and productive and wealth-building path for them?

As we're seeing in this whole pandemic, it is clearly proven that sometimes what people need is unrestricted cash. We're seeing a variety of different account ideas percolating that would give, especially younger people, that flexibility and still leverage the power of the market.

Guideline:  How does the movement for states’ auto-IRAs and various models impact the broader retirement security conversation?

We are in such an important testing moment with the auto-IRAs. We are learning and we're getting good data about what is working when it comes to employer compliance. Just because you have an automatic enrollment requirement doesn't mean employers will immediately do it. So, how do we help them comply, and help them help their employees? Is it a stick? Is it a carrot? Or is it a mix of both? What kind of enforcement mechanisms and supports do we need? What is the right default contribution percentage?

What's the right auto escalation? These seemingly very small differences between current state programs are teaching us important things about what a national approach or standard should or could look like.

Guideline: Lastly, we always like to know what people are reading.

I just finished a book by Sebastian Junger called Tribe: On Homecoming and Belonging. It's both about our veterans and a fresh hypothesis on PTSD, what drives it, and whether it's our veterans who need the help or whether it's us as a society. It's really thought provoking.

In the midst of everything we saw in Afghanistan, and hearing from the veterans who served in that war, I think it raises a lot of questions about divisions in our society and what we really value as a people.

​​Special thanks to Catherine New for her help on this article.