The newest generation of college graduates will switch jobs more than a dozen times over the course of their careers. They will juggle side gigs, launch businesses, and step in and out of traditional roles. Job mobility was already increasing as Gen Z began to enter the workforce just before the Covid-19 pandemic, but their focus on workplace flexibility, as well as their inherent digital fluency, has dramatically accelerated this shift.
The 401(k) system that this generation is inheriting, however, is built for a workforce that stays put. It was designed in 1978, during the pension era, when people would often stay with a single employer for their entire career. The pension plan, in which employers took responsibility for saving, investing, and providing lifetime income to their employees, reinforced this behavior. It was a two-way partnership that demanded, and then rewarded, career loyalty.
Today the workforce is much more mobile. This is partly due to the transition from pensions to 401(k)s, which removed a big incentive for employees to stay loyal to their employers. Companies made this change to their retirement benefits in order to reduce their long-term financial risk, especially as underfunded pensions strained corporate balance sheets during the 2008-09 financial crisis.
Now we are seeing some of the far-reaching impacts of that shift—greater mobility, yes, but also less stability in retirement savings for many workers. Because when people change jobs, they often leave behind their retirement accounts. Rollovers require paperwork. Vesting schedules reset. Contribution levels drop. The result is a savings gap that compounds with every job transition. People switch jobs to grow their careers and incomes—but when their retirement savings don’t follow, they actually fall behind. And in a new economy with much greater workplace mobility, that gap will grow over time. Frequent job switches cost workers as much as $300,000 in lost retirement savings over a career. For Gen Z workers, who will change jobs earlier and more often, that kind of leakage could define their financial future.
We have now had more than 40 years to fix the 401(k) framework, but the changes so far have been merely incremental. The secure 2.0 act created a national retirement savings “lost and found” and expanded auto-rollover rules for small balances. And after years of effort and broad support, the market was perceptive enough to make auto-enrollment the default.
Auto-enrollment promised to help people save more without needing to think too much about it. But that progress has been undercut by the lack of portability within the contribution system. During the “Great Resignation” of 2020, many workers who changed jobs cashed out their accounts, or they started new jobs, but with lower contribution and matching levels.
Portability needs to become part of the default model. 401(k) plans should recognize that the account belongs to the individual, not to the employer. Every retirement account should follow the worker automatically when they change jobs. That means full adoption of digital transfer protocols by record-keepers, retention of preferential 401(k) pricing as accounts move, and avoidance of transfer costs or switches to more complicated plans. Workers should carry both their balances and their contribution rates, too—with auto-enrollment and escalation that continue across plans, ideally up to 15%. A system like this wouldn't just benefit Gen Z. It would provide stronger support for workers of all stripes, from entrepreneurs to small-business owners, part-time employees, and parents re-entering the workforce. Part-time workers, who often hold multiple jobs, could more easily consolidate their retirement savings across accounts. And parents returning after caregiving breaks wouldn’t have to restart their contribution and savings rates from scratch. A portable, automatic system would help them keep building toward retirement, no matter how their work lives change.
There is growing momentum around the idea that the long-term financial security of Americans requires a stronger foundation. The tax bill released this week by the Senate includes a provision to give children a $1,000 investment account at birth, with the option for families to contribute an additional $5,000 each year on a tax-deferred basis. If it passes, the program will help more households have a real stake in the economy. This concept closely tracks a proposal that I recently made in Barron’s to seed simple, low-cost accounts for young people with $1,000. In my vision, these accounts would scale over time into a universal retirement program.
Personal investment accounts are a long-term asset that belongs to the individual—one they can carry, build, and rely on across a lifetime. Mobility, too, is an important driver of America’s economic strength. If we want future generations to look for the best opportunities, we need a retirement system that moves with them rather than penalizes them.
The views expressed in this article are those of the author(s) and do not necessarily reflect the opinions, beliefs, or positions of Russell Investments or its affiliates. These views are subject to change without notice at any time based on market, economic, or other conditions.
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