Given Social Security’s uncertain future, defined contribution executives say that it’s important for plan sponsors to offer participants holistic retirement planning and encourage additional savings.

The Old-Age and Survivors Insurance Trust Fund, which covers retirees and their families, is now set to reach depletion in 2033, according to an April report from the Social Security Board of Trustees. If that happens, the trust’s income would be able to pay 77% of its scheduled benefits, the report states.

A reduction in Social Security benefits would lead to an increased strain on the defined contribution system, according to Bill Ryan, Chicago-based partner and head of defined contribution solutions at NEPC LLC.

In the case of lower benefits, many individuals would need to rely more on their 401(k) plan for retirement income, he said. To do so means that “it’s going to put more pressure on the 401(k) balance, draw down faster, and you could see it depleting sooner,” Mr. Ryan said.

Mr. Ryan called it a “compound effect: Social Security reduces; more money comes out of the 401(k) plan (and) runs out quicker. And so, assuming returns are constant for everyone, the only way to start planning for this is to incrementally save more to backstop that.”

Sources agreed that taking steps to encourage saving in defined contribution plans and prepare participants holistically for retirement is key to addressing a potential benefit reduction. Meanwhile, lawmakers on Capitol Hill are also taking steps to push back Social Security’s impending insolvency.

Rep. John Larson, D-Conn., who serves as ranking member of the House Ways and Means Social Security Subcommittee, reintroduced a bill in May that would shore up Social Security with an increase in benefits across the board and an extension of the system’s solvency through additional taxes on higher earners and investment income.

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