For millions of American workers, the promise of a secure retirement remains elusive, even as the nation’s economy continues to grow. As of August 2025, about 56 million private sector employees in the United States still lack access to an employer-sponsored retirement plan, a statistic that underscores a persistent and troubling coverage gap. Despite decades of reforms and innovations, the U.S. retirement system continues to earn middling marks in global comparisons, a situation described by Morningstar’s Brian McCarthy as "an embarrassment that so many workers have no way to save for retirement through their employers."
This crisis of coverage—rather than a crisis of adequacy—has prompted a flurry of policy responses and industry innovations in recent years. Two of the most significant developments are the rise of cash balance plans in the public sector and the introduction and evolution of pooled employer plans (PEPs) in the private sector. Each approach offers unique solutions and challenges, but both aim to expand retirement security to a broader swath of the American workforce.
Cash balance plans, a hybrid model blending elements of traditional defined benefit pensions and defined contribution plans, have gained traction among public employers seeking to balance risk, portability, and benefit adequacy. According to the Reason Foundation’s August 28, 2025 analysis, there are now eight public cash balance plans nationwide—double the number from just over a decade ago, with two new plans adopted since 2020. This uptick reflects a growing recognition that traditional pension models are often unsustainable for state and local governments grappling with underfunded liabilities and a more mobile workforce.
What makes cash balance plans attractive? At their core, these plans credit employees with a notional employer contribution and a guaranteed interest credit, allowing workers to take both their own and their employer’s contributions, plus accrued interest, when they leave their job. This portability is especially appealing in an era where few employees spend their entire careers in government service. As Reason Foundation notes, "cash balance plan portability—on par with defined contribution retirement plans—is attractive" for a mobile workforce and those who value flexibility.
However, the stability and adequacy of these plans hinge on careful design. The interest crediting formula, in particular, is a critical lever. Fixed or market-based crediting methods tend to produce funding volatility similar to traditional defined benefit plans, exposing employers to the same risks they sought to escape. In contrast, conditional formulas—such as those tied to the plan’s funded status or featuring capped market returns—can reduce volatility while still supporting adequate retirement income. The Reason Foundation’s report makes it clear: "Conditional formulas…can meaningfully reduce volatility while still supporting sufficient retirement income."
Effective cash balance plans also require robust funding policies. The analysis finds that contribution rates between 12% and 20% of pay are generally sufficient to achieve full funding and adequate benefits, provided they are paired with conservative return assumptions and disciplined amortization methods. Overly long amortization periods, aggressive asset smoothing, and optimistic payroll growth assumptions can all erode solvency, even in well-designed plans. In fact, the report warns that "open or overly long amortization periods can erode plan solvency even when the underlying benefit structures are designed to be more predictable."
Transitioning to a cash balance structure offers public employers a chance to reset actuarial assumptions, enforce stricter funding discipline, and improve transparency for all stakeholders. The Reason Foundation concludes that, when constructed with conditional mechanisms and strong funding rules, cash balance plans offer "a stable and sustainable framework for public retirement systems."
While public sector innovations focus on risk and sustainability, the private sector’s challenge is different: expanding access. The introduction of pooled employer plans (PEPs) under the SECURE Act in 2021 was meant to address this gap, allowing unrelated employers to band together and offer retirement benefits through a single, professionally managed plan. But as Brian McCarthy of Morningstar pointed out in his August 27, 2025 commentary, the rollout of PEPs was anything but smooth. Confusion over plan design, operation, pricing, and distribution led to limited initial adoption. "PEPs remain obscured in a cloud of confusion and have seen limited adoption," McCarthy observed, noting that even industry insiders often hedge their praise for PEPs with qualifiers like "may reduce costs" or "will potentially eliminate some of the administrative burdens."
That picture is starting to change. Driven by state mandates, legislative pressure, and industry advocacy, PEP adoption is now increasing rapidly. According to a recent Transamerica survey cited by Morningstar, 47% of 400 employers who adopted a retirement plan opted for a PEP. Still, awareness remains low—77% of respondents had no idea what a PEP was before adopting one. As McCarthy puts it, "the old adage that retirement plans are sold, not bought, continues to apply in our industry."
The Department of Labor (DOL) has taken notice, issuing anticipated guidance in July 2025 to clarify fiduciary and administrative responsibilities for employers considering PEPs. One of the most significant proposals is a safe harbor provision that would relieve employers of liability for investment decisions within the PEP, placing sole responsibility on the pooled plan provider (PPP). This could be a game changer for small businesses, many of whom are wary of taking on fiduciary risk. "That’s a significant relief for the employer, and I’m fully supportive of this proposal if it encourages them to offer a retirement plan," McCarthy wrote. Yet, he cautions, "I have my doubts that this will move the needle," since employers still must conduct due diligence when selecting a PEP and its fund lineup.
The complexity of vetting pooled plan providers and the underlying investment menu remains a barrier, especially for employers without dedicated benefits staff. The quality and methodology of fiduciary service providers can vary widely, from national firms like Morningstar Investment Management to smaller regional advisors with less experience. Ensuring that the investment lineup matches the needs of a company’s workforce is no simple task.
Despite these hurdles, there is optimism that a combination of new guidance, tax incentives, state mandates, technological advances, and lower-cost fund options will help close the retirement coverage gap. As McCarthy concludes, "there’s no silver bullet that will close the coverage gap in this country. As an industry, we’re making great strides with PEPs, tax incentives, state mandates, new technologies, digitally-forward recordkeepers, and lower-cost fund options in standalone plans."
Ultimately, the U.S. retirement system is at a crossroads. Public sector employers are reimagining how to provide stable, portable benefits through innovative plan designs, while private sector leaders and policymakers are racing to bring millions of uncovered workers into the retirement savings fold. The road ahead is complex, but recent reforms and renewed attention from regulators offer hope that tomorrow’s retirees may finally enjoy the security that has long been promised, but too often denied.
