What Have We Learned? How Retirement Stopped Being the Employer's Promise

In 1963, the Studebaker car company closed its plant in South Bend, Indiana. Its pension fund was so far short of its obligations that the wind-down split workers in three groups: those at retirement age got their full pensions, a larger group got a lump sum worth roughly 15% of what they were promised, and about 2,900 workers got nothing.

Studebaker became the case reformers pointed to for the next decade. Senator Jacob Javits of New York carried a bill to protect private pensions, and after years of jurisdictional fights it passed as the Employee Retirement Income Security Act (ERISA), signed by President Ford on Labor Day 1974. ERISA set funding rules so plans had to put money aside each year, vesting rules so workers kept what they earned, and it created the Pension Benefit Guaranty Corporation (PBGC) to backstop failed plans.

What’s interesting is that ERISA did not REQUIRE employers to offer a pension benefit. Rather, it established funding, fiduciary, reporting, disclosure, and vesting requirements for employers that chose to sponsor them. One of the unintended consequences of protecting employees is that it made the traditional pension (defined benefit) more expensive and riskier for employers to run. Over the following decades, employers froze or terminated their defined benefit plans in large numbers; in the private sector today they are nearly all frozen or terminated. The law that protected pension plans for employees simultaneously made them less attractive to sponsor.

Where the 401(k) came from

The Revenue Act of 1978 added a short provision, Section 401(k), meant to clarify the tax treatment of deferred cash compensation. It ran about a page and a half and was not expected to matter much.

Then a benefits consultant named Ted Benna, working for a Philadelphia-area firm in 1980, saw that the provision could let ordinary employees set aside part of their pay before tax, with an employer match as an incentive. His first client, a bank, rejected the idea as too untested, so he ran the first plan for his own company's staff. The IRS wrote enabling rules in 1981, and the salary-deferral model spread fast.

Benna himself rejects the discovery story. Everyone in the field knew the provision existed, he says; it had been written for a different purpose, and no one had thought to use it this way. By 2011 he was calling the system he helped start "a monster," too complex and too loaded with fees for ordinary savers.

He is also blunt about the pension era, which was never the golden age it gets remembered as. Many plans were underfunded, women and people of color and small-firm workers were often excluded, and the rules tied people to a single employer for decades to keep what they had earned. What changed with the move to individual accounts is who carries the risk related to whether the money will be there, how it should be invested, and how long it needs to last. These risks shifted from the employer to the worker.

Where that leaves us, in numbers

As of March 2025, 72% of private-sector workers had access to a retirement plan at work: 70% to a defined contribution (DC) plan like a 401(k), and 14% to a defined benefit (DB) pension. Access depends heavily on firm size and union status. About 55% of workers at firms with fewer than 50 employees have access to a plan, compared with 90% of employees at firms of 500 or more. When comparing unionized vs. non-unionized employees, 64% of private-sector union workers have a defined benefit pension, against 9% of nonunion workers. The roughly one in four private-sector workers with no workplace plan at all cluster in small firms, part-time roles, and lower-paid jobs. Twelve states have stepped in with automatic IRA programs, which held about 1.2 million funded accounts by January 2026.

How do retirement systems in other developed countries compare? Around the world, retirement systems vary widely, but most developed countries rely on a combination of government-funded pensions, employer-sponsored retirement plans, and individual savings to provide income in retirement. While the balance among these three pillars differs by country, many nations are reforming their systems to address longer life expectancies, declining birth rates, and the financial sustainability of supporting an aging population. Australia is the best funded system, and by contrast, the United States has the least funded system.

Australia's answer

Australia handled the decline of the employer pension by mandate. Its Superannuation Guarantee requires employers to pay a set percentage of earnings into each worker's retirement account, a rate that reached its legislated target of 12% on 1 July 2025. The account belongs to the worker, it follows them between jobs, and from mid-2026 employers must pay into it every payday rather than every quarter.

This is still an individual account exposed to markets, and it carries its own gaps, including lower balances for women and for people with broken work histories. The difference from the American path is the mandate and the reach. Australia decided that if retirement was going to run through individual accounts, coverage would not depend on whether your employer chose to offer a plan. Unlike the United States, whose Social Security system is financed primarily on a pay-as-you-go basis, Australia's retirement system is largely pre-funded through mandatory employer contributions equal to 12% of wages that accumulate in individually owned Superannuation accounts. This has resulted in retirement assets which exceed 140% of Australia's GDP, making it one of the world's most best funded retirement systems. 

The portable benefits debate

The question underlying all of this is: who is responsible for benefits when the work is not performed for an employer? More than 70 million Americans earn at least some income through freelance, contract, or gig work, by industry estimates, most cannot access employer-sponsored benefits, in part because the law creates legal exposure for a company to provide contracted workers benefits without triggering “employee status”. The fix being suggested is a “portable benefit”: an account a worker carries from gig to gig. Utah passed the first such law in 2023, several states followed, and in July 2025 a group of senators introduced a federal package creating a "safe harbor" so companies can contribute without that contribution triggering freelancers or gig workers as formal employees.

Utah’s approach (and now federal package) is the approach we have now seen twice: convert an employer obligation into an individual account and call it “portable. Whether that is a real extension of social security or a tidy exit depends almost entirely on the amounts of value in the account. In DoorDash's Pennsylvania pilot, the company put 4% of a worker's pre-tip earnings into an account, which came to under $400 a year. The Economic Policy Institute argues the safe-harbor approach mainly shields companies from misclassification claims while leaving the adequacy question to the worker.

Supporters answer that most contractors currently get nothing, so even a small account is better than their current situation where they get nothing for their retirement benefit.

This gets more pressing as AI accelerates the unbundling of jobs into tasks and pushes more work toward contingent and independent arrangements. Employer-sponsored benefits assume full-time employment with a single company, and that describes a shrinking share of workforce demographic. The 401(k) rules show how much can change without a public decision: a few paragraphs in the tax code and one consultant's reading of them restructured American retirement strategy.

Worth: what a career adds up to

Across this series we have used four lenses: work, workforce, workplace, and worth. Retirement belongs under worth. A pension plan promises a fixed income for life post-retirement; a 401(k) plan pays out whatever the account holds, with the worker absorbing the investment and longevity risk along the way.

For HR leaders, the live risk is that reward systems are still built for a workforce of full-time employees of a single company, while the actual workforce is increasingly part employee, part contractor, and part something the org chart has no box for. Portable benefits will either extend real coverage to those workers or become a cheap substitute for it. The contribution amounts will determine which.

Your Sphere of Influence

What you can act on	A practical move this quarter
Who is actually covered	Map which of your people (full-time, part-time, temp, contractor) can participate in the plans you sponsor, and who is shut out by plan rules rather than by choice.
Plan defaults	Auto-enrollment and auto-escalation move participation far more than financial-education sessions do. Check that your defaults assume people will not opt in on their own.
Fees and Feasibility	Benna's central complaint. Examine your plan's fee disclosures and ask what a percentage point of fees costs a median worker over 30 years. Does your plan still look attractive?
Match adequacy	Audit whether your match plus default contribution gets a typical worker to a plausible retirement income, a higher bar than offering a plan.
Contingent workers	Decide your position on portable benefits before legislation decides it for you. In a growing list of states, contributing to a contractor's portable account is now legally workable.
Competitive Advantage	Given that the trust fund supporting Social Security retirement and survivor benefits is projected to exhaust its reserves in the fourth quarter of 2032 and only be able to pay out 78% of its obligation, what can you do as a company to fill the gap and become an employer of choice?

For nearly a century, retirement policy has progressively shifted financial risk away from employers and toward individuals. The emerging debate over portable benefits is less about creating something new than deciding whether the next generation of workers will have enough retirement security to bear that risk.