Retirement Security: State

February Unemployment Report for Workers Over 55

The Bureau of Labor Statistics (BLS) today reported a 3.4% unemployment rate for workers age 55 and older in February, a decrease of 0.1 percentage points from January.

While the headline unemployment rate for older workers is low, women still face sex discrimination in the labor market. Older women earn less than men. The gender pay gap for full-time workers aged 55 to 64 is $13,000, with men earning an average of $50,000 a year compared to women’s $37,000. The earnings gap for minority women is even larger. Black women average $35,000, or $15,000 less than men, while Hispanic women average $27,000, or $23,000 less than men.

Elderly Poverty RatesThe less workers earn, the higher the poverty risk in old age. Tweet: Women’s History Month #JobsReport: gender #paygap contributes to elderly poverty gap</a>; Women are at even higher risk because they live on average 2.5 years years longer than men, and thus need to save more.

Thirty-six percent of elderly women are poor (income below $11,880) or near-poor (income below $23,760) compared to 28% of men, a gender poverty gap of 8 percentage points. Reflecting their earnings gap, the poverty gap between all men and black and Hispanic women is larger. Forty-three percent of elderly Hispanic women are poor or near poor, 15 percentage points more than men. And more than half (51%) of black women are poor or near poor, 23 percentage points more than men.

Social Security alone is insufficient to lift women and minorities out of poverty in retirement. To ensure adequate retirement income, we need to both strengthen Social Security and ensure all workers have access to a retirement plan. Guaranteed Retirement Accounts (GRAs) are individual accounts requiring contributions from both employees and employers throughout a worker’s career. They provide a safe, effective vehicle for workers to accumulate personal retirement savings.

On November 19, 2014, Director Teresa Ghilarducci presented SCEPA's latest research on the Declining Access to Retirement Plans in Connecticut at the Connecticut Retirement Security​ ​Boardmeeting​. Earlier this year, the Connecticut General Assembly created the Connecticut Retirement Security Board through the Public Act 14-217 to conduct a feasibility study on a state-level public IRA. If approved, the state-level IRA would create an automatic IRA administered through an appointed trust fund board, as in California. Employers with five or more workers would be required to participate unless they offer a different retirement savings plan to their employees. Unlike most IRAs bought in the private market, the money would be paid out as a lifetime annuity with an option for workers to select a lump-sum, helping to ensure that people will not outlive their assets while preserving worker's ability to choose the option best suited to their financial needs. Finally, a modest guarantee and low fees would protect the money saved by hard-working employees.

The latest SCEPA research shows that Connecticut is in need of a solution to their pending retirement crisis. As of 2010, only 59% of employed Connecticut residents aged 25-64 worked for an employer who offered access to a retirement savings plan, down from 66% in 2000. Four out of ten workers residing in Connecticut do not have access to a retirement plan at work. What could be considered the most detrimental is that workers closest to retirement​ (55-64) had the largest drop in sponsorship, 15 percConnecticut Workers Chart 2ent, among all age groups surveyed. 

Connecticut Workers Chart 1

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

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.

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.

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.

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.

On April 18, 2012, SCEPA released the study, "Are Connecticut Workers Ready for Retirement" which documents a downward trend in both employer sponsorship of retirement plans and employee participation rates in Connecticut from 1998 to 2012, making it increasingly difficult for workers to prepare for retirement.

In 2010, 50% of Connecticut's workers – 740,000 residents – were not participating in an employer-provided retirement plan. The lack of access to retirement plans is falling for workers in almost all demographic and economic categories, including those nearing retirement and young workers, as well as those with middle and high income levels.

CT Retirement Graph

SCEPA's research attributes the downward trend in workers' financial security in retirement to two factors:

  1. A Drop in Employer Sponsorship - From 2000 to 2010, the availability of employer-sponsored retirement plans in Connecticut declined by eight percentage points, from 66% to 59%. Four out of ten workers in the state do not have access to a retirement plan at work.

  2. A Lack of Participation - Of the 59% of workers who had access to a retirement plan at work,14% did not participate, either due to personal choice or structural rules that exclude part-time workers, those with under a year of service, or those under 25.

The report broke down the trend by income, age, race, and industry:

  • Sponsorship is decreasing fastest for lower-income workers, but those at all income levels are experiencing a drop in access. Lower-income workers saw a decrease in sponsorship rates from 46% to 31% over the ten year period. Workers in the middle 50% and top 50% income groups saw decreases of 8% and 7%, respectively.
  • Workers between 55 and 64 had the largest drop in sponsorship - 15% - among all age groups surveyed. However, young workers (25-44) were close behind, with a drop in sponsorship of 13%.
  • Asian workers lost the most ground with a 31% decline in sponsorship rates, almost triple the decline of 11% experienced by white workers and almost eight times the decline of 4% of black workers.
  • Small firms have the lowest sponsorship rates, and this trend is accelerating in Connecticut. Of all firms, small firms with 1 to 24 employees showed the biggest proportional drop in sponsorship from 2000 to 2010. Sponsorship rates dropped from 34% to 27% in 2000, a change of 20%.

Connecticut's State Senate Majority Leader Martin Looney (D-New Haven) introduced legislation, SB 54, to create a retirement savings plan for low-income workers in the private sector. Passed by the Joint Committee on Labor and Public Employees in March, it would create a retirement plan for all Connecticut workers without access to a retirement savings plan at work. The legislation is modeled after SCEPA's proposal for state Guaranteed Retirement Accounts (GRAs), a plan that was recently enacted in California.