Retirement Equity Lab
SCEPA's Retirement Equity Lab, led by economist and retirement expert Teresa Ghilarducci, researches the causes and consequences of the retirement crisis that exposes millions of American workers to experiencing downward mobility in retirement. As a result, SCEPA has developed a policy proposal known as Guaranteed Retirement Accounts (GRA) to provide stable pensions to the 63 million workers who currently have none.
On April 8, 2014, Teresa Ghilarducci, Director of SCEPA and Labor Economist testified before the Washington State Senate in Olympia and presented SCEPA's recently released study, "Are Washington Workers Ready for Retirement." This study finds that employer sponsorship of retirement plans in on the decline from 2000-2012. The availability of employer-sponsored retirement plans in Washington declined by two percentage points, from 62% to 60%. Four out of ten workers in the state do not have access to a retirement plan at work.
While this decline is smaller than in some other states, it follows a downward trend across the country. This trend means that, upon retirement, workers without access to a retirement plan during their working years will rely solely on Social Security and Medicare to survive. The support from these federal programs can be supplemented by personal savings, but, as we document below, workers without employer-sponsored retirement plans tend to be less financially secure overall and less able to save sufficiently (if at all) for retirement.
Most workers had less access to retirement plans in 2012 than they did in 2000, but the decline has not been equal across social and economic groups. Particularly stark is the drop in the sponsorship rate for female workers, whose access decreased from 65 percent to 60 percent. Female workers in Washington experienced a decline in sponsorship at more than double the rate of workers' overall sponsorship reduction.
In March, SCEPA Director Teresa Ghilarducci testified before the Minnesota House of Representatives in support of HF 2419, which would study the potential benefits of creating the Minnesota Secure Choice Retirement Plan, a state-administered retirement savings plan for public and private workers without access to retirement plan at work.
Ghilarducci presented SCEPA's report, 'Are Minnesota Workers Ready for Retirement,' which reports a 6% decline in employer-sponsorship of retirement plans in the state. The research supports the implementation of policies that help workers gain access to safe, affordable and efficient retirement savings vehicles to prevent downward mobility among seniors.
One of the most important aspects of the Minnesota Secure Choice Retirement Plan is that it is safe and cost-effective. The MN Secure Choice plan would facilitate voluntary employee contributions through a simple payroll deduction, rather than complicated private retirement plans that require participants to shoulder the risk and responsibility of finding and paying for the right financial advisor and/or choosing the appropriate investment options. Other advantages include pooled investments, diversified investment portfolio and access to professional money management firms.
SCEPA is excited to announce that "New Policies for an Older Unemployed Population," a SCEPA Working Paper by Director Teresa Ghilarducci and Economist Joelle Saad-Lessler, has made the top ten download list for the Social Science Research Network, (SSRN) for three different sub categories; Food Stamps and Food Assistance, Medicaid and Rates of Coverage. The paper outlines issues facing older unemployed workers, such as living with low incomes and without health insurance for longer periods of time due to increases in the duration of unemployment. The authors recommend expanding and reforming retraining programs to better accommodate the needs of older workers and the creation of tax incentives to encourage employers to hire older workers.
by Teresa Ghilarducci, SCEPA Director
January 29, 2014
The President's "myRA" proposal is an old idea with a slight twist. It would allow employers to send workers' contributions to a guaranteed non-profit government bond plan. This is a good move. The program would extend tax breaks that are currently only avaliable to high income workers. This is both a fair and good move.
However, the proposal would move myRA accounts to commerical IRA accounts when savings exceed $15,000. These accounts could then be tapped before retirement, which is a bad move. Another detriment - the program is voluntary, which will limit an individual's ability to accumulate adequate funds for retirement.
Unfortunately, these possibilities for leakage make this proposal woefully inadequate to deal with the retirement crisis. The President should support expanding Social Security, Social Security contributions, and a universal guaranteed prefunded account on top of Social Security.
On December 10, 2013, SCEPA Director Teresa Ghilarducci will testify before the Nebraska Legislature’s Retirement Systems Committee hosted by its chairperson, Senator Jeremy Nordquist. The hearing discusses LR344, legislation calling for an interim study to examine the availability and adequacy of retirement savings of Nebraska’s private sector workers.
In the last 10 years, Nebraska has seen a decline of 9% in the number of employers offering retirement plans to their workers, dropping from 66% to 57%. As a remedy to a looming retirement crisis caused by a lack of retirement income, Ghilarducci proposes opening the state's public pension system to private sector employees by creating State GRAs. This would provide residents access to professional money managers and allow them to choose among a variety of investments, including a guaranteed fund similar to the Thrift Savings Plans offered to federal employees and the TIAA-CREF plan offered to university professors.
On October 28, 2013, SCEPA Research Assistant Kate Bahn presented SCEPA's report, "Are Connecticut Workers Ready for Retirement?" at the first meeting of the state's Retirement Security Plan Roundtable. The ongoing series is spearheaded by Connecticut State Senate Majority Leader Martin M. Looney and House Majority Leader Joseph Aresimowicz. The series will focus on how to prevent a looming retirement crisis in the state by establishing a state-administered retirement saving plan for low-income, private sector workers. This proposal, modeled after SCEPA's State GRA plan, was described in Senate bill senate SB 54.
Bahn's presentation documented the decline in employer-sponsored retirement plans in the state, making it harder for Connecticut residents to prepare for retirement and leaving them vulnerable to downward mobility as they get older.
On July 5, 2013, Vice Chairman of the Greenwich Democratic Town Committee Bill Gaston cited SCEPA's "Are Connecticut Workers Ready for Retirement?" in an op-ed, Growing Potholes in the Road to Retirement. He quotes our documentation of a dangerous downward trend in employee access to retirement plans through their employer.
• 50 percent of Connecticut's working-age residents are not covered by any employer-sponsored plan
• Between 2000 and 2010, employers offering a retirement plan declined from 66 percent to 59 percent.
• Four out of 10 workers residing in Connecticut do not have access to a retirement plan at work
Gaston acknowledges that the current system, dominated by what Thomas Friedman's calls the "401(k) world," works for the wealthy, but not the middle class. He cites significant research into why this failure is not individual but structural, including the switch from DB plans to high-risk, high-fee DC plans that serve Wall Street better than Main Street.
Gaston calls for a "voluntary, portable, state-administered defined benefit plan, funded by workers and their employers." SCEPA has testified before the Connecticut legislation in support of such legislation, which is modeled on SCEPA Director Teresa Ghilarducci's State GRA plan.
On October 23, 2013, the Maryland legislature will hold a hearing on Senate Bill 1051, the Maryland Private Sector Employees Pension Plan sponsored by Senator James Rosapepe. The bill will be heard in Annapolis by the Maryland Joint Committee on Pensions. SCEPA submitted written testimony regarding the state of future retirees in Maryland based on our March 2013 report, "Are Maryland Workers Ready for Retirement?" The report received headlines in the state last spring for its findings that '40% of older households in Maryland are ill-prepared for retirement' and that '49% of those working in Maryland are not enrolled in an employee-sponsored retirement plan.'
SCEPA testified at a hearing in the Maryland House of Delegates on similar legislation sponsored by Delegate Tom Hucker that would increase access to a retirement savings plans by giving workers the option of opening an individual Guaranteed Retirement Account (GRA) through the existing Maryland State Retirement and Pension System. The Guaranteed Retirement Account (GRA) is based on Ghilarducci's STATE GRA plan, which was recently enacted in California.
SCEPA published an updated Fact Sheet on the retirement account balances of near retirees based on new data from the U.S. Census Bureau's Survey of Income and Program Participation.
The analysis reveals that 59 million Americans ages 50-64 in 2011 will not have enough retirement assets to maintain their standard of living when they retire. Three-fourths of near retirees have annual incomes below $52,536 per year and their average retirement account balance is $27,207. Furthermore, the median value of retirement account balances for half of near retirees is zero, showing that half of older working Americans have absolutely no retirement savings.
These facts - coupled with a weakening labor market, especially for older workers - documents the growing trend toward a retirement income security crisis.
The Fact Sheet, "New Retirees Have Inadequate Retirement Account Balances," updates last year's analysis, which was the first report to provide a breakdown of defined contribution (DC) retirement account balances by income.
A recent article in Institutional Investor by Fran Hawthorne, "Claims that 401(k)s Beat Defined Benefit Plans Stirs Controversy," analyzes the findings of an Employee Benefit Research Institute (EBRI) Issue Brief that claims that defined contribution (DC) plans do better than defined denefit (DB) plans for all income levels.
Hawthorne's critique points out the weaknesses of the EBRI study. These include the fact that the study includes only data on voluntary 401(k) plans, which have higher contribution rates than the more prevalent automatic enrollment plans, that it uses unrealistically high rates of return on stocks, and that it ignores the fact that employers contribute 'free money' toward DB plans, but do not need to contribute to DC plans.
Hawthorne is thorough. However, she overlooks two significant problems. First, EBRI overstates the retirement plan coverage and participation rates for workers, especially following an unemployment spell; this is especially important in the aftermath of the Great Recession. Second, the study uses an implausibly high growth rate of average hourly earnings. EBRI's findings are partly a result of these skewed assumptions.
These concerns are spelled out in a Huffington Post Business blog, by SCEPA Director Teresa Ghilarducci and SCEPA Research Economist Joelle Saad-Lessler.