What the U.S. can learn from Australia’s retirement system

401(k) plans have been the subject of much scrutiny in the press recently, with critics pointing out that tens of millions of private sector workers lack access, the fees are egregiously high, and the tax benefits skew towards higher earners.

At Guideline, our founders understood the retirement challenges facing small and mid-sized businesses and their employees from their personal experience. They reimagined a new kind of platform leveraging payroll integrations with embedded low-cost robo-advice to make 401(k) plans more accessible.

More broadly, many states have set out to address the lack of retirement plan access by creating their own retirement savings programs. These programs include mandates requiring employers to facilitate enrollment or offer a retirement plan on their own. Today, at least 19 states are working on a program (8 active and 11 working on implementation) — and about the same number have proposed legislation.

However, a different idea has been floating around Washington for the last few years about creating a national retirement program. It’s not farfetched to imagine how a national retirement program could work. Australia has a very successful program called the Superannuation Guarantee, which is inspiring some lawmakers and financial leaders to consider if the U.S. could do something similar.

How Australia did it

Australia’s superannuation program was introduced in 1992 when the country seemed like it was on the path to a retirement crisis. More than three decades later, Australians likely have more retirement savings per capita than any other country.

Australia’s program works like this: All companies must contribute 11% of their workers’ monthly pay into a retirement plan, and employees can top up contributions from their paychecks. Next year, Australia is set to raise the employer contribution to 12%.

Compare that to the U.S. system: Offering a 401(k) has been optional for employers, though that’s changing now on a state-by-state basis. Even for those people with access to a retirement plan, there is no requirement to save. And Social Security, which is intended as the baseline income for people in their retirement years, is “on autopilot and heading toward a cliff” if policymakers don’t take action. This has some industry leaders worried about the prospects for the aging American population. BlackRock’s CEO Larry Fink highlighted this in his annual letter last month and suggested that the Australian system is worth a closer look.

How realistic is this for the U.S.?

A real opportunity to create a national retirement program could come as early as next year. Here’s why.

Back in 2017, the Tax Cuts and Jobs Act added a slew of tax cuts to the system, most of which are set to expire at the end of 2025. This timing of the expiring tax credits — coupled with the expanding federal deficit and Social Security’s shortfall — could push policymakers to make some bold new tax and budget initiatives in 2025. Even as the outcome of November’s election could change priorities, there is bipartisan momentum to take serious steps to overhaul the retirement system.

One draft bill in Congress would require businesses with 10 or more employees to offer a 401(k) plan or an auto-IRA (with a state or a private company provider). Lawmakers have pitched the proposal as one that will “essentially be costless” to smaller employers with a new tax credit of $500 per year for three years.¹

The benefits of a national program would mean that more Americans have access to some kind of plan — either through their employer or facilitated by an employer to a state plan. For smaller employers, a federal standard could streamline regulations and make compliance easier.

U.S. employers may be reluctant to contribute 11-12% annually like Australian companies do today given existing payroll tax levels, but a contribution of 3-4% may be reasonable if phased in over a few years and coupled with auto-enrollment at similar employee contribution levels. This could also pave the way to eliminate the non-discrimination tests that create headaches for many smaller businesses.

While the political timing is still developing, many of the elements of a national retirement program already exist and that could facilitate implementation. First, dozens of states are creating mandates and auto-IRA programs; second, Guideline and others are focusing on providing 401(k) plans to more effectively serve small and mid-sized businesses; and third, an increasing number of federal tax credits and auto-features from the SECURE Acts are boosting employer contributions and savings rates. Taken together, these factors could lay the groundwork for the success of a national program.

The ultimate goal is to maximize the number of Americans saving for retirement. While a potential national retirement program in the U.S. may not mirror the Australian plan or that of any other country, the Superannuation Guarantee can offer valuable inspiration for enhancing coverage for all U.S. workers.