Social Security and defined contribution plans can provide a solid retirement income picture for retirees, in part thanks to the evolution of the DC system, according to new research and a group of panelists who spoke at the Employee Benefit Research Institute’s Winter Policy Forum on Tuesday.

In recent years, various policy and research groups have questioned the viability of the DC system’s ability to provide Americans with enough income in retirement. But when used correctly, particularly for younger workers who started early in the DC system, Social Security and DC plans are complementary systems, said Craig Copeland, EBRI’s director of wealth benefits research, during a research presentation.

During the panel discussion, Copeland reviewed the findings from the firm’s Retirement Security Projection Model on how the public and private systems work together to provide retirement income. The research introduced a metric called replacement rates. These rates, calculated by converting DC balances into annuities and combining them with Social Security benefits, offered a picture of retirees’ income relative to their lifetime average earnings.

“We are using metrics we haven’t traditionally relied on, so while these numbers are preliminary, the trends they reveal are significant,” Copeland said.

Age Groups and Income Replacement

EBRI’s research compared income replacement rates for workers aged 35 to 64, highlighting differences across income levels and age cohorts. For older workers (ages 60 to 64), DC plans play a smaller role in income replacement due to the limited contributions during their early careers and the prevalence of defined benefit plans during that time.

However, for younger workers (ages 35 to 39), the landscape shifts dramatically. With expanded coverage, automatic enrollment features and legislative improvements like the SECURE 2.0 Act of 2022, DC plans are poised to contribute significantly more to retirement income. Middle-income earners, in particular, benefit, with replacement rates increasing by nearly 25% compared with older cohorts.

“The DC system, when combined with Social Security, provides a robust level of retirement income,” Copeland noted. “For middle-income quartiles, this collaboration is especially critical.”

While Social Security serves as the foundation for retirement income—especially for lower-income workers—DC plans fill gaps for middle- and higher-income earners.

Impact of Social Security Cuts

The study also modelled potential Social Security benefit reductions. Copeland stated that a 25% cut to reflect the projected funding shortfall in the system could lower replacement rates to approximately 60% from the current range of 75% to 80%, disproportionately affecting middle- and lower-income retirees.

“Social Security is a vital component of retirement income,” Copeland emphasized. “Any reduction has a profound impact, underscoring the need to preserve its solvency while enhancing private savings.”

Policy groups, including the National Association of Plan Advisors, have warned that some tax-advantaged savings programs, such as 401(k) accounts, may be at risk during federal legislative negotiations. No immediate plans are publicly on the table to change the DC tax system, though recent legislation has made post-tax Roth savings more prevalent in workplace retirement plans.

The Evolution of Retirement Planning

Peter Kapinos, head of workplace and investment marketing at Empower, stated that workplace retirement plans have evolved over the past 15 years. He noted the integration of Social Security benefit projections into retirement plan dashboards as a significant innovation.

“This provides participants with a clearer picture of their retirement readiness,” Kapinos said. However, he warned that Social Security decisions are not “set-it-and-forget-it” choices. With hundreds of claiming scenarios available, many workers struggle to optimize their benefits.

Kapinos said a recent study from Empower found that 88% of workers expect their workplace to provide financial planning support—signaling a shift in expectations from such services being seen as executive perks to becoming a near-universal demand.

Assessing Adequacy, Not Crisis

Michael Doshier, a senior retirement strategist at T. Rowe Price, called for a forward-looking approach to retirement adequacy, pushing back on claims of a broken system.

“Replacement ratios of income, while not perfect, are the best single indicator we have,” he said. Doshier highlighted the growth in workplace retirement plan coverage, especially in the private sector, which has reached 72%. Doshier also addressed small business participation, an area historically seen as underserved.

“By the end of 2022, over 13 million workers in small businesses were covered by defined contribution plans—an exponential increase compared to the defined benefit era,” he said.

Reinforcing the 3-Legged Stool

Will Hansen, chief government affairs officer at the American Retirement Association, reinforced the idea of Social Security and 401(k) plans functioning as two strong legs of a three-legged retirement stool.

“Social Security was always intended as a safety net for the most vulnerable, while the 401(k) was introduced to address gaps left by traditional pensions,” Hansen explained.

He dismissed claims of a retirement crisis as exaggerated, based on anecdotal and survey-driven data rather than empirical evidence. He also called on his peers to abandon crisis-laden language, stating, “the 401(k) system is resilient. We need to focus on how to improve it, not tear it down.”