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.

 

Governing logBelow is a recent interview Teresa Ghilarducci, Director of SCEPA, did with Governing Magazine Editor Penelope Lemov on local and national efforts to mitigate the retirement crisis in "States Search for Retirement Security Beyond Obama's myRA."

PL: How would you define the stakes states and localities have in public retirement security?

TG: Seventy-five percent of Americans nearing retirement age in 2010 had less than $30,000 in their retirement accounts. The specter of downward mobility in retirement is a looming reality for both middle- and higher-income workers. Almost half of middle-class workers will be poor or near poor in retirement, living on a food budget of about $5 a day. It isn't just a matter of people being able to keep up their standard of living. We're talking about people who will be old and in a chronic state of deprivation -- with all the attendant dislocation that causes. Cities will suffer a decline in the stability of neighborhoods. Neighborhoods are rich when they have grandmothers who are stable and able to function.

PL: At least five states have passed -- and another handful are debating -- bills to set up task forces to develop a plan. Is this just kicking the can down the road?

TG: What these task forces are going to do is present their legislatures with a full blown, detailed plan. A task force can get all the details right so legislators have their questions answered. It's a better way to write a bill like this.

New York TimesThe New York Times' Kate Taylor raises the issue of New York City's retirement insecurity in her article, As the City's Elderly Population Swells, Concerns Rise Over Lack of Access to Retirement Plans. She documents the decrease in workers' access to retirement plans at work found in SCEPA's research, Are New Yorkers Ready for Retirement

"According to Ms. Ghilarducci's research, 59 percent of workers in the city do not have either a pension or a 401(k), up from 51 percent a decade ago. Many small businesses do not have the human resources capacity to manage a 401(k). Moreover, Ms. Ghilarducci says, 401(k)'s are less than ideal for workers themselves, since they charge higher fees and have lower rates of return than pension funds, in part because people can withdraw their money at any time."

The solution: "creating a pooled pension fund for private sector workers that the city itself could manage." 

Teresa GhilarducciOn May 21, 2014, SCEPA Director Teresa Ghilarducci testified before the U.S. Senate on Finance Subcommittee on Social Security, Pensions, and Family Policy at a hearing titled, "Strengthening Social Security to Meet the Needs of Tomorrow's Retirees." As a retirement expert, Ghilarducci provided an oral and written statement on how the retirement crisis exacerbates inequality.

The hearing was broadcast online. Below is an excerpt from Ghilarducci's comments. 


"The current voluntary, self-directed, liquid, commercial retirement account system relies on generous tax subsidies and is stacked against workers for five reasons.

  1. Nearly half of workers have no plan at work because the system is voluntary. Only 53% of the workforce have any kind of retirement plan at work, which is down from 60% 10 years ago
  2. Middle class workers are more likely to take out loans or withdraw money before retirement from their 401(k) or IRA's than the highest income workers. Many workers use their retirement accounts as savings accounts. A 30-year-old who cashes out a $16,000 account will be losing an estimated $470 a month at age 67. 
  3. Tax deductions create inequality in unintended and perverse ways. Two people can save exactly the same amount in their 401(k) plans and IRAs, but the higher earner will get a larger tax deduction and therefore a higher rate of return on their savings. Over just a few years this differential multiplies exponentially so the system unintentionally penalizes middle and lower income savers. 
  4. Lower income workers have more conservative portfolios, which is rational, but those portfolios earn less overtime. 
  5. Middle and lower income savers pay higher fees; they don't enjoy scale economies in fund management."

retirement readiness in CT​On May 7, 2014, the Connecticut General Assembly announced it's approval of a plan leading to the creation of a state-level public IRA plan open to all private sector
workers.

They estimate the feasibility study and subsequent plan for a new retirement policy will be ready to implement in 2016. This success is due to the hard work of the Campaign for Retirement Security Connecticut. SCEPA is a proud partner in this effort, having testified on numerous occasions in the state capitol on our research report documenting the state's retirement readiness. The SCEPA report, "Are Connecticut Workers Ready for Retirement?' revealed that in 2010, 50% of Connecticut workers were not currently participating in an employer-sponsored retirement savings plan.

The Bipartisan Policy Center (BPC) today launched its Personal Savings Initiative (PSI). The initiative will examine whether savings rates and available savings vehicles are meeting the retirement goals of Americans and the nation's investment needs.

Co-chaired by former Senate Budget Committee Chairman Kent Conrad, a Democrat, and Jim Lockhart, former Deputy Commissioner of the Social Security Administration under President George W. Bush, the initiative will issue recommendations from a bipartisan commission, which includes SCEPA Director Teresa Ghilarducci

According to Forbes' coverage of the launch announcement, "Lockhart cited a recent Gallup poll that found that not having enough money for retirement is the top financial worry among middle-aged Americans. Then he recapped some sobering retirement statistics to show why the issue is so important and why Congress should take it up."

The initiative will address important financial security issues, including, but not limited to:

  • The impact of federal policies on private savings. 
  • The finances and operation of Social Security Disability Insurance and its interaction with private disability insurance. 
  • Interaction of Social Security with personal savings, especially those in tax-advantaged retirement savings vehicles.
  • The impact of long-term care needs on retirement security. 
  • The role of homeownership and student debt. 

During 2014, the PSI will hold roundtables and issue a series of white papers highlighting challenges related to retirement savings, defined contribution accounts, annuities, Social Security Disability Insurance, and the intersection among housing, higher-education debt, and savings. The commission will develop a set of policy recommendations and model their impact on personal savings, retirement readiness, the macro economy and the federal budget to be presented in a final report in early 2015.

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.
Washington State Retirement Data Graph
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.
Minnesota Retirement Participation Rates
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.

Teresa Ghilarducciby 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.

Nebraska state sealOn 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.