California has set a precedent for providing needed retirement reform at the state level, and other states have begun to follow in its footsteps. Within one week, both Connecticut and Maryland's legislatures are considering similar legislation to create individual retirement accounts for low-income private employees who do not have access to such plans at work.
On Tuesday, February 26, 2013, the Connecticut General Assembly held two hearings on the legislation, discussed in detail below. One week later, on March 5, 2013, Maryland's House of Delegates' Economic Matters Committee considered legislation introduced by Delegate Tom Hucker. SCEPA tesified at both, sharing our research on the impending retirement crisis.
The Connecticut Assembly's Labor and Public Employees Committee held a hearing on Bill 54: An Act Establishing a Retirement Savings Plan for Low Income Private Sector Workers, and the Aging Committee discussed Bill 885: An Act Establishing a Task Force to Evaluate the Utility of Creating a Public Retirement Plan. SCEPA Research Economist Joelle Saad-Lessler, Ph.D. Columbia University, provided testimony for both pieces of legislation. She stated:
"Middle income workers in Connecticut will fare worse than today’s retirees. Between 2000 and 2010 employer sponsorship of retirement plans dropped from 65% to 58%. As a result, over 686 thousand workers in Connecticut between the ages of 25 and 64 did not have access to a retirement plan through their employer in 2010. When people do save for retirement, their savings are vulnerable to high fees and low returns. Growing numbers of Connecticut residents will find themselves NOT READY for retirement, and will turn to the state for help. This is a crisis that needs to be addressed now.
We propose that the Connecticut legislature increase access to retirement savings by giving workers the option of opening up an individual, Guaranteed Retirement Account (GRA) through the existing Connecticut Retirement Plans and Trust Funds (CRPTF).
The Guaranteed Retirement Account, or “G.R.A.”, takes advantage of existing financial infrastructure in the state to give private sector workers access to the best financial managers and the lowest fees. The accounts would be separate from public sector retirement funds and come at no cost to taxpayers -- workers would pay administrative fees. Since these are individual retirement savings accounts, there is no liability to the state. Workers take out what they and their employer put in, plus the returns they earn. Private capital markets offer expensive retirement accounts with high fees to lower income workers because the sums invested are low. By pooling the money from many private sector workers, the Connecticut Retirement Plans and Trust Funds can invest in longer term opportunities with higher rates of return and charge lower fees. This is a win for workers."