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  #51  
Old 08-01-2017, 03:36 PM
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http://www.governing.com/topics/mgmt...t-private.html

Quote:
Legal or Not, States Forge Ahead With 401(k)-for-Everyone Plans
Congress jeopardized the future of state plans to help private employees save for retirement. States don't seem to care.

BY LIZ FARMER | AUGUST 2017

......
This July, Oregon became the first to offer a retirement plan to full- and part-time private-sector workers who don’t have access to one through their employer. Eight other states -- California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, Vermont and Washington -- are implementing similar plans that should reach full rollout within the next five years. In general, the programs will run independently from the state and will be paid for through retirement account fees. When the nine state plans are up and running, they will serve roughly one-quarter of private-sector workers across the country. In California alone, the plans will cover nearly 7 million people.

This effort to close what many feel is a retirement security gap among working Americans has been batted around for more than a decade, first at the federal level and then by states. During President Barack Obama’s first term, he proposed a national retirement savings program that would automatically enroll workers with an option to opt out. The effort stalled in Congress, so in 2015 the administration launched its myRA program, a voluntary retirement program for workers who could afford only small monthly contributions. By then, states were pushing hard to offer their own retirement plans. California in 2012 and Connecticut in 2014 set up feasibility studies for a state-run retirement plan for private workers. Illinois in 2015 became the first state to pass legislation approving such a program. And last year, California and Connecticut released the findings from their studies, which helped spur adoption of retirement programs in those states and in a handful of others.

But just as the momentum seemed to be building for the programs, Congress delivered a blow to the concept. Earlier this year, it reversed an Obama administration rule that exempted state-run individual retirement account (IRA) plans from some aspects of the Employee Retirement Income Security Act (ERISA), thus calling into question states’ legal authority to sponsor private-sector retirement programs. The move, which was a surprise to many, was spurred by financial groups that opposed these programs. But that isn’t stopping the nine states from moving forward with their plans -- and several more may join them. This determination to push on suggests that states are willing to solve the national retirement crisis without federal help and despite federal roadblocks.

There’s certainly good reason to see the retirement crisis as a state problem: Research shows that it is states that will be footing the bill for Americans who aren’t financially prepared to enter their golden years. “Nothing has happened at the federal level,” says Rocky Joyner, vice president and actuary at the financial firm Segal Consulting. “State officials are saying, ‘These people are retiring in my community, in my state.’”

That reality is one reason why Segal Consulting conducted an analysis looking at what would happen if all full-time workers gained access to retirement plans. The findings, released earlier this year, show that states could save big on future Medicaid costs: a collective $5 billion in the first decade. These savings would be a result of potentially vulnerable households being removed from the poverty rolls by the time they retire. More specifically, the Segal study found that in the first 10 years after a retirement savings plan is introduced, 15 states would save more than $100 million each in Medicaid payments; California and New York alone would combine to save more than $1.1 billion.

The study has validated what experts have long warned -- that states will ultimately pay for poor retirees. That notion has helped fuel bipartisan support in an era of constrained finances. “This is an approach where we can save taxpayer dollars,” says Sarah Gill, senior legislative representative for AARP. “This is not a red or blue state issue.” In fact, the idea of having a government-sponsored, automatic-enrollment IRA plan actually came from a 2006 paper co-authored by researchers from the moderate-left Brookings Institution and the conservative-leaning Heritage Foundation.

But while Republican-dominated states such as Arkansas and Utah are looking at establishing retirement savings programs, the issue has gained the most traction in states with Democratic leadership. That difference likely has to do with the policy’s two biggest opponents: businesses and the insurance and financial industry -- traditionally conservative groups that feel the programs are either too burdensome or in some other way meddle with the private sector.

The ERISA Industry Committee, which lobbies on behalf of large employers that generally already sponsor retirement savings programs, has pushed back against any policy that they believe might be burdensome for their members. For example, Oregon is one of six states that requires employers to participate in the state program if they don’t already offer their own retirement plan. In that state, the committee successfully lobbied to simplify what businesses providing a savings plan have to do to be exempt from participating in OregonSaves. Meanwhile, the insurance and financial industry has protested the programs on the grounds that they are government overreach and aren’t necessary. “Anyone can walk into any of our offices today and come out a couple hours later with a retirement plan that fits their individual needs,” says Gary Sanders, a lobbyist for the National Association of Insurance and Financial Advisors.

When asked why people don’t already do so, Sanders says the disconnect is due to a lack of financial education and desire to save. He points to the relatively low enrollment (about 20,000) in Obama’s myRA since launching in late 2015. Sanders also says the mandate for employers to participate in state plans and facilitate the payroll deduction is a burden. And he disputes the idea that state-sponsored retirement programs would create more business for his members. Even when states choose a private-sector company to run the programs, Sanders says, “you have [businesses that are] winners and losers.”

Advocates for state-run programs have scoffed at such claims. The myRA program, they say, puts the onus on savers to seek it out and sign up. State programs, on the other hand, auto-enroll employees -- a feature that research has shown makes people 15 times more likely to save for retirement. Besides, advocates argue, research by the Pew Charitable Trusts has found that small-business owners view sponsoring their own retirement savings program as overwhelming and expensive. “The retirement industry just didn’t want competition,” says Illinois Treasurer Michael Frerichs.

This past January the opposition to state-run retirement plans found a sympathetic ear in Congress. House Republicans moved to block states’ and localities’ efforts to establish these plans by passing a resolution overturning a Department of Labor rule last year that reaffirmed governments’ legal right to sponsor private-sector savings programs for small businesses. Referred to as the “safe harbor” rule, it specifically exempted state and potential city savings plans from ERISA, which governs private retirement plans and requires certain legal and financial protections for plan enrollees. The measure easily passed in the House, and after more than a month of stalling, the Senate narrowly approved the resolution despite a bipartisan outcry from state and local officials and AARP.

The effort played upon one of the central weaknesses of a state-sponsored retirement plan: While the vast majority of small-business owners support the idea of offering auto-IRAs to their employees, most oppose the plans being sponsored and administered by the state or the federal government, according to a survey conducted by Pew. Seemingly, the negative news regarding many governments’ growing public pension liabilities has cast a cloud over states getting involved in any kind of new retirement plan -- even one where the state has no liability. Oregon Treasurer Tobias Read says he still has to dispel the myth that OregonSaves is a pension plan.

But many feel this perception problem can be fixed. At a retirement conference in Washington, D.C., this winter, John Scott, who directs the retirement savings project at Pew, noted the survey also found that small employers are more comfortable with mutual fund and insurance companies taking the helm as an auto-IRA sponsor. He said that respondents likely thought that government sponsorship meant that taxpayers would be liable for the plans. “If we had explained that sponsorship means partnering with a financial services company,” he said, “we most likely would have seen a higher level of support.”

Despite congressional action this year, all states that had already approved a retirement savings program are moving ahead to implement it. There is widespread sense that this is the most beneficial road to take -- for the state as well as low-income workers. “There are dire consequences to individuals -- to communities -- when you have people who don’t have a secure life and long-term stability,” says California State Treasurer John Chiang.

The plans -- often called Secure Choice -- mainly follow one of two structures. In New Jersey and Washington, for example, the plans are offered through a marketplace. Businesses’ participation is voluntary, but if they opt in they can decide to work with private entities to create their own plan or they can choose a plan through the state to auto-enroll their workers. This approach has met the least amount of resistance from the National Association of Insurance and Financial Advisors, as it allows financial service companies to compete against each other for clients.

The more common course employed by states, however, is a program where a service provider is selected by the state to run and administer the retirement program. Workers are auto-enrolled into an IRA retirement plan in places where the employer doesn’t offer one. Each plan that follows this structure still has its own unique components. Maryland, for example, is waiving the annual business license fee for businesses that already offer a retirement plan and for businesses that eventually will through the state.

Vermont’s plan is a multiple employer plan, and it is voluntary for employers. Those who opt in will auto-enroll employees into the Green Mountain Secure Retirement Plan. It is ERISA-compliant, and so is largely unaffected by the congressional action. Massachusetts passed a similar plan in 2012 for nonprofits. So far, however, the state has been unsuccessful at passing an auto-IRA plan for all workplaces.

In every case, the programs are phased in. Oregon, for example, first rolled out OregonSaves as a pilot program to 11 businesses covering about 150 employees. The state plans to initiate a second pilot program in October and use what it learns from the pilots to fully launch in January, with larger employers going first.

Despite Congress’ repeal of the safe harbor rule, state officials say they are still on solid legal ground: The 2016 rule simply clarified that employers wouldn’t have to comply with ERISA under a government-sponsored retirement plan. In other words, there is no rule or law that says governments have to comply with ERISA. Some state treasurers have sought out legal opinions to back up their beliefs. Others think the issue will ultimately be decided by the courts.


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  #52  
Old 08-04-2017, 01:16 PM
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Looks like Oregon will use a private firm to manage the recordkeeping for their program, so the industry will still be involved. It's the local brokers and financial planners who are getting pushed aside, along with the small TPA providers
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Old 08-07-2017, 09:19 PM
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CALIFORNIA

https://calpensions.com/2017/07/31/i...ats-in-a-name/

Quote:
In birth of new state program, what’s in a name?
It’s time to bring in some “Mad Men,” like those vintage Madison Avenue advertising professionals in the critically acclaimed television show, and run the name of a new state retirement savings plan up the flagpole and see who salutes.

The current name, Secure Choice, doesn’t say much about a big new program that in five years could be a mandatory option to supplement Social Security for an estimated 7.5 million Californians currently not offered a retirement plan by more than 200,000 employers.

Secure Choice also has a kind of generic bureacratic tone, not exciting or appealing to young people, said a staff report given to the Secure Choice board last week, and it has an “association with other sensitive policy issues,” presumably like pro-choice on abortion.

Early attention to the “brand” comes as the program, authorized by legislation last fall after a feasibility study approved in 2012, prepares to begin no earlier than 2019. A three-year phase-in starts with large employers and moves on to those with five or more employees.

“How you want people to see you, how you want people to know you, and how they feel about it when they hear it — that’s your brand,” said board member Yvonne Walker, president of SEIU Local 1000.

Illustrating the need for professional help, board member William Sokol, a labor attorney, said he would never have chosen a “stupid” name like Google or a name like Apple, with a logo of an Apple with a bite out of it.

“I’ve learned how little I understand about marketing and branding,” said Sokol. “But I’ve learned it’s critical in this new world we live in.”

The board gave the Secure Choice executive director, Katie Selenski, the go-ahead for her plan to contract with a California-based firm to test names and logos. If another name appears best for marketing, Secure Choice could still remain as the name of the program.

California’s version of Obamacare is named the California Health Benefit Exchange but marketed as Covered California, said the staff report. The Oregon Retirement Savings Plan is marketed as OregonSaves.

......
Secure Choice is an “automatic IRA.” A deduction from the employee’s pay, probably 3 percent in the first years, will go into a tax-deferred savings account — unless the employee opts out.

Experts say an automatic payroll deduction, not requiring a decision during day-to-day household budget pressures, sharply increases savings in private-sector 401(k) individual investment retirement plans.

Prior to Trump’s expected signing of the the regulation repeal in May, the Secure Choice attorney, Morse, said he believed the program would remain exempt from ERISA under a 1975 labor regulation.

Morse followed up with an advice letter that includes the issue of whether not requiring the employee to “opt in” is employer influence that might fall under ERISA. He said the employer has no say because offering the program is required by state law.

After Trump signed the repeal, De Leon and state Treasurer John Chiang said at a news conference they always thought Secure Choice was exempt from ERISA under previous regulations, but sought the clarification last year to ease the concern of business groups.

De Leon said “a handful of big banks” profiting from managing retirement plans pushed the repeal legislation. In a letter to California Congress members opposing the repeal, Gov. Brown said “Wall Street institutions” were trying to protect their retirement products.

The U.S. Chamber of Commerce, urging repeal in a letter to Congress, said the regulations allow retirement plans with less worker protection than ERISA plans, may cause some employers to forego ERISA plans, and could cause problems for multi-state employers.

The California Chamber of Commerce has no position on Secure Choice and has not done a legal analysis, said Marti Fisher, a Chamber lobbyist. She said the Chamber is participating in Secure Choice’s employer stakeholder working group.

.....
Some conservatives oppose Secure Choice as government expansion into the private sector that could lead to more public debt. The legislation says the savings fund is not guaranteed by the state and employers are protected against liability.

So, if nothing is guaranteed, perhaps it shouldn't be called "Secure" Choice.
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Old 09-11-2017, 03:40 PM
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http://www.truth-out.org/opinion/ite...ement-accounts

Quote:
Welfare for Wall Street: Fees on Retirement Accounts
Monday, September 11, 2017
By Dean Baker, Truthout | Op-Ed

Most of us are willing to help out those who are less well off. Whether it comes from religious belief or a sense of basic decency we feel are an obligation to provide the basic necessities of life for the poor. But how would we feel about being taxed $1,000 a year to provide six figure salaries to people in the financial sector? Although no candidate to my knowledge has ever run on this platform, this is the nature of the retirement system the federal government has constructed for us.

Twenty or 30 years ago, most middle-class workers had defined benefit pensions. This meant that they could count on a fixed benefit that was some fraction of their average salary during their working years. For example, a person who spent 30 years at a company may be entitled to a pension that was equal to 60 percent of their average salary over their final five years of work.

With a defined benefit pension system, most of the risk was born by the employer. The worker did not have to worry about the stock market being down when she chose to retire. Nor did it matter to her if the pension made bad investment choices; the employer was liable for the promised benefits, unless it went bankrupt.

The virtues of the defined pension system can be exaggerated, although recent research indicates it provided more retirement income than we had recognized. Workers who changed jobs frequently or worked part-time rarely qualified for pension coverage. This excluded many women, African American and Latino workers. But for those who were eligible the defined benefit system provided a substantial degree of retirement security.

That is not the case with the system of 401(k)s and IRA(s) that replaced the defined benefit system. Many workers are never able to put enough into their retirement plans to accumulate much towards retirement. In addition, there is no way to completely avoid the risk that the stock market can take a plunge as workers approach retirement. And some people will inevitably make bad investment choices.

However, there is one item that can be controlled. This is the fees that workers pay on the money they have in these accounts. These fees average 1 percent a year on the almost $6 trillion in 401(k) accounts managed by employers. There is a wide range for the fees on the $8 trillion held in IRAs, but many people pay more than 1 percent annually on these accounts as well.

.....
There are ways to rein in these costs. Several states -- including California, Illinois and Oregon -- have passed legislation that allows workers in the private sector to buy into low cost funds managed through the state. These public systems are supposed to go into operation over the next few years. Presumably, other states will follow this model if these systems prove successful.

At this point, the biggest question is whether these programs will get off the ground. The Trump administration has been trying to sabotage them, using an interpretation of the Employee Retirement Income Security Act (ERISA) that would ban the state-run funds. Apparently Trump is concerned that his friends in the financial industry could not survive if they faced competition from the government.

The future of these publicly-run systems is unclear at this point. It would be a huge step forward if 401(k) and IRA managers simply had to disclose their fees in their quarterly statements, but like cockroaches, they want to remain in the dark.

For now, you should just get used to the idea of these big handouts to the financial industry. You can console yourself with the thought that these are people who probably could not earn an honest living without help from the government.


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Old 10-09-2017, 03:10 PM
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ILLINOIS

http://www.chicagotribune.com/busine...y.html#new_tab

Quote:
Illinois small-business retirement plan faces resistance

Spoiler:
As Illinois moves toward becoming a national model in retirement savings for small-business workers, the designers of the state's new Secure Choice IRA plan were warned this week that if they don't get the plan right, it could be doomed from the start.

At an Aspen Institute forum in Chicago, the state board planning the new program was warned repeatedly that the project could flop if small businesses are overwhelmed with bureaucratic paperwork and if low-income workers feel nervous about saving too much for retirement when paychecks already are stretched thin.

Secure Choice was passed into law in 2015 as a way to give about 1.2 million employees of small companies a way to save money at work so they don't end up poor in retirement. Most small businesses don't offer retirement plans.

Richard Thaler, a University of Chicago Booth School of Business financial behavior expert, told the Secure Choice board: "Why don't companies do this? Because it's a pain in the neck."

He said Illinois' program would fail if the board doesn't "make it easy" for employers and their employees. "Remove the barriers. Sludge is the stuff to prevent. If you have a lot of papers to fill out, that's the sludge."

The Aspen Institute is encouraging states to make the automatic saving possible through individual retirement accounts, or IRAs, at small companies. Aspen is a nonprofit organization that hosts nonpartisan forums "for analysis, consensus building, and problem solving on a wide variety of issues," according to its website.

In the U.S., only about three in 10 small businesses have retirement savings plans at work, and when people don't have access to the simple way of saving on the job, most workers skip it and arrive at retirement with virtually no savings, according to research by the Employee Benefit Research Institute.

.....
In the proposed Roth IRAs, Illinois employees would deposit a portion of every paycheck. They would have the option to skip the plan if desired. But research shows that few workers do when money flows from paychecks into retirement plans automatically.

To generate retirement savings, "the only way to do it is saving at work," said Thaler, one of the nation's academic leaders in saving behavior. He is the author, along with Cass Sunstein, of a book titled "Nudge" that addresses the topic.

Illinois is the furthest ahead, with a plan to require all small employers with more than 25 employees to start making Roth IRAs available at workplaces in 2017.

But as the newly appointed Secure Choice board prepares to accept proposals from companies that would invest and handle the administration of the IRA accounts, the board was warned that resistance from employers or employees could hurt not only Illinois, but set the retirement savings agenda back nationally.

Many small companies employ moderate- and low-income people, and states are grappling with how far they can go with the automatic savings amounts. Illinois' plan calls for automatically placing 3 percent of an employee's pay in a Roth IRA each time the person is paid. Retirement research shows that people will not have enough for retirement with a 3 percent savings rate, and that 6 percent is better. But the concern raised at the Aspen forum was that low-income people would balk at a 6 percent rate.

Illinois and other states eventually want the plan to be self-sufficient and, as now envisioned, Martin Noven, senior director of government markets for TIAA-CREF, said it will probably take two years for the plan to break even and five years to cover expenses of record keeping. Under the Illinois plan, fees — which are paid by workers as they invest in mutual funds in the workplace Roth IRAs — can't exceed 0.75 percent of the money invested.

David Madland, fellow at the Center for American Progress, warned the Secure Choice board to keep fees lower because "they can really affect someone's lifetime earnings."


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Old 10-11-2017, 09:03 AM
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could go here or the public pensions thread, but I'm gonna put it here

WISCONSIN

http://urbanmilwaukee.com/pressrelea...cabe-proposes/

Quote:
PRESS RELEASE
Make state pension system an option for everyone in the state, McCabe proposes
What the Government does needs to be done for our whole society, not just a few.
Spoiler:
Milwaukee, October 9, 2017 – Speaking at a meeting of the Wisconsin Alliance for Retired Americans, governor candidate Mike McCabe said Wisconsin’s entire population should be eligible to participate in the state’s retirement system.

“What government does needs to be done for our whole society, not just a few. The closer we can get to the point where everyone pays and everyone benefits from what government does, the better off we all will be,” McCabe said. “In keeping with its name, the Wisconsin Retirement System should offer retirement security to all of Wisconsin. Employees and employers in every sector of the economy should be able to buy into the WRS, not only the public sector.”

Currently, about 600,000 people are eligible to participate in the Wisconsin Retirement System, or only about one-eighth of the adult population of the state.

“Wisconsin has one of the most financially sound retirement systems in the country. Making participation an option for everyone in Wisconsin would make it even stronger,” McCabe said. “More people invested in the system means even greater financial stability. It also means more people with a stake in sustaining the retirement fund and defending it against political attacks. Social Security has lasted for more than 80 years because every working American pays for it and everyone stands to benefit.”

Employers in the private sector who want to provide a retirement benefit to employees should have the WRS as an option and so should those who are self-employed and want to set aside money for their own retirement, McCabe said. No one should be required to participate, but everyone should be eligible to buy into the system, he added.


Campaign website is GovernorBlueJeans.com.


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Old 02-09-2018, 04:45 PM
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http://www.thinkadvisor.com/2018/02/...paign=02092018

Quote:
Fixing Retirement Without Tax Hikes or Benefit Cuts
Economist Teresa Ghilarducci tells ThinkAdvisor about her plan to fix America’s 'jumbled, broken' retirement system — and how it would reshape advisors’ jobs

Spoiler:
If the federal government mandates all workers and employers to contribute 3% of wages to individual employee pension-style Guaranteed Retirement Accounts, will America’s “jumbled, broken” retirement system be fixed?

Retirement security expert Teresa Ghilarducci, an economics professor at the New School for Social Research, says yes indeed, in an interview with ThinkAdvisor. Her bold plan would also change the financial advisory profession, she argues.

The present retirement system isn’t merely a broken hodgepodge, it’s “a disaster,” according to Ghilarducci. Consequently, the U.S. is headed for a retirement catastrophe, where millions will suffer in poverty-stricken old age.

A Guaranteed Retirement Account (GRA), providing a supplemental stream of income to Social Security, will avert that, Ghilarducci writes in her new book, “Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans” (2nd edition — Columbia University Press — January 2018). The professor’s co-author is Tony James, president and COO of the Blackstone Group investment advisory firm, manager of large pension funds.

RELATED

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The Social Security Administration would handle GRA payments, but the program would not be a government entitlement.

While Ghilarducci focuses on those earning less than $100,000 a year, a GRA would benefit high-net-worth people, too, by providing them with a safe place to invest versus making costly mistakes in their 401(k)s, as is often the case, she says. The income stream would also help ease anxiety about outliving one’s money, a persistent fear that even the affluent, especially older women, harbor.

Where do financial advisors fit in? They would still help folks manage their entire portfolio; but should a GRA become law, the advisory profession would change dramatically, as Ghilarducci describes in the interview.

Focused on the retirement-funding dilemma for 35 years now, the economist is director of the New School’s Retirement Equity Lab, which researches the future of Americans’ retirement. She is a trustee of the Goodyear Tire and Rubber Co. Health Care Trust and the United Automobile Workers Retiree Medical Benefits Trust.

Further, Ghilarducci serves on the board of the Economic Policy Institute and is a past commissioner of Gov. Arnold Schwarzenegger’s Public Employee Post-Employment Benefits.

Under the GRA plan, employees and employers would each automatically contribute 1.5% from worker salaries. Independent contractors would contribute 3% on their own. All funds would be pooled and invested by a board of professional investment managers appointed by the president and Congress.

Individuals would choose a pension manager, who would be held accountable to investors. These managers, in turn, would select the money managers to make actual investments.

At least a 6% or 7% annual return for each saver would be realized, Ghilarducci estimates.

The “guarantee” refers to the worker’s “protected” principal; that is, each saver will get back at least as much as they put in. Unlike 401(k) plans, people would be prohibited from withdrawing funds prior to retirement.

No congressional bill has yet been introduced for the plan, but Ghilarducci believes it would likely receive serious consideration when the next recession hits — an event she anticipates occurring in two years.

ThinkAdvisor recently interviewed the professor, on the phone from her New York City office. She and co-author James, Costco board chairman and who reportedly declined the post of Commerce secretary in President Barack Obama’s administration, are certain that the GRA plan will ensure “a failsafe” retirement. Here are excerpts from our conversation:

THINKADVISOR:

Why did you write “Rescuing Retirement”?

TERESA GHILARDUCCI:

I want to prevent a coming crisis. For 35 years, I’ve been working on the issue of how to fund retirement. I declare the present system a failure and a disaster.

You write that inadequate funding of workplace retirement is “a political time bomb with potentially devastating effects on [government] budgets and the macro economy.” What could happen?

If we don’t change what we’re doing, we’re going to have millions of middle-class people who are downwardly mobile into poverty.

How will that affect America’s cities and states?

They’ll have to provide more services or let these older people starve. Low-growth communities depend on elders for their spending. Therefore, if we have a big chunk of our population with very little income, it’s going to affect local commerce.

RELATED

Alicia Munnell: The Social Security Fix No One Wants
The influential retirement scholar also talks to ThinkAdvisor about millennials’ grim retirement prospects and three crucial pieces of advice for...

To what extent does your GRA plan help affluent people?

I’m shocked that almost 20% of people in their 50s making $250,000 a year have nothing but Social Security [for retirement]. A GRA will help affluent people have a safe place to invest. Right now, they’re in self-directed commercial accounts, in which they make a lot of mistakes. They have no idea how to decumulate their assets. And they’re worried stiff that they’ll live too long. A GRA would also help the wealthy get their children to save early so they can be more financially independent.

Women outlive men, as we know. You write that “women ages 75-79 are three times more likely than men to be living in poverty.” So a GRA will clearly help them.

I wish I could have put this in red letters in my book: When people have even as much as $1 million and don’t have a guaranteed [retirement] payment stream, they get very worried. When an old woman dies with $25,000 in a shoe box, research shows she probably lived her last years in anxiety, possibly malnourished, because she didn’t know how much money she needed and how long she needed it to last. That, and having to manage the money yourself, is causing trauma, depression and anxiety in a huge part of the population.

Who’d be responsible for investing people’s money?

Pension managers that individual savers would choose [from a long list].

You write that it is they who would select the money managers who’d handle the actual investing. A wide range of institutions would manage the accounts, including money management firms and mutual fund companies, you say.

Yes. It would be the same kind of apparatus — Commonfund, for example — that manages large pension funds.

But savers would have little say, then, as to how or where their savings would be invested.

They could choose among the large managers, but they wouldn’t pick the investments. It would be very similar to a 529 plan in that way.

What role would financial advisors play?

They would help people decide how much to save, help them choose the fund manager and help manage their entire portfolio, including their house and debt. I would imagine financial advisors’ entire profession would change.

Why is that?

They wouldn’t be tied to selling individual products. I think many financial advisors don’t like doing that, anyway. Everyone needs financial advice about how to manage their lifetime consumption, but people don’t need the advice that financial advisors give, which is [often] to choose among mutual funds that charge high fees and for which advisors get a commission for selling. That system has failed.

Many advisors would disagree with you.

Most of the financial advisors I meet are very honest people and are filling an important role in people’s lives. But the piece I’m taking away from advisors is the most controversial one and the one that doesn’t work very well: telling people what funds to invest in. That’s conflicted and inefficient.

You write that people will likely ask if GRAs will be “a windfall for Wall Street.” What’s your answer?

Clearly, we’re going to have private-sector companies invest the money, just as we have private-sector companies build roads and rocket ships. Those companies don’t get a windfall. So this won’t be a windfall for Wall Street either. The companies [who manage the money] are going to be regulated and will be scrutinized for their prices and practices. It will be more regulated than it is now.

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The influential retirement scholar also talks to ThinkAdvisor about millennials’ grim retirement prospects and three crucial pieces of advice for...

That doesn’t dovetail with President Trump’s deregulation promise and to have less government in Americans’ lives. The GRA plan requires an act of Congress and would be managed by a federal agency. What are the chances for its enactment?

The retirement crisis is on the minds of most voters; and older people [nearing retirement] are much more likely to vote. The plan [adds] onto a program that people already like: Social Security. We look mainly to Congress — there’s not much leadership in social policy coming from the White House. The plan has a lot of elements that Republicans would like. So we believe both parties would support employees securing their own financial future.

Why did you pair up with Tony James to write the new book?

He’s as close to the system as one can get. He understands its weaknesses. He brings the employer vision and the investment vision. He has strong opinions about how public policy should go and contributes a lot to political campaigns. He invests for pension funds and is a corporate director of several companies; for example, he’s the chairman of the board of Costco.

Would the investment firm that he runs, Blackstone Group, have a business role in the GRA plan?

Probably not. He invests money only for very large pension funds, and most of his funds are closed. His motive, as far as the GRA is concerned, isn’t to make more money for his business.

You refer to GRAs as an “annuity.” I assume that’s “annuity” in the generic sense?

Right — an annuity like Social Security pays or that a defined benefit plan pays, not a product that insurance companies sell. Those products aren’t popular, and they don’t work.

You write that GRAs would bring people an annual return of at least 6% or 7%. How do you figure that?

It’s just an estimate, not a guarantee. The principal would be guaranteed [as much money as a worker contributes]. That’s minimizing the downside risk. The upside will be a return that’s smoothed out over the whole group and over time.

When can money be withdrawn from a GRA?

Either when you start receiving Social Security benefits or before then [if you opt to] delay collecting Social Security. The whole idea is that the retirement system isn’t there to help you accumulate money for your heirs.

Is that what people do now?

One of the problems with the system is that we’re giving tax breaks for bequests. That’s not the intention of a tax break for retirement saving. It’s not there for rich people to leave money to their children. That’s bad public policy.

Do you think that all workers will want a GRA?

It’s a budget solution to a problem, [alternative solutions to which] people don’t want. We can cut benefits, raise taxes or force people to save. When you ask which they want, whether Republican or Democrat, they’d rather be forced to save. Right after Trump was elected, we surveyed 3,000 people. Most picked forced savings of those three options. And people don’t like their 401(k)s — and they really don’t like their IRAs.

But probably there would be plenty who say they don’t want the government to force them to save.

I’m not na´ve to think everyone is going to agree with our plan. But I’m speaking to people’s common sense and their emotions of fear and shame. I want to change those feelings into power and hope. The only way you get there is to have a strong Social Security system and constant savings in a well managed financial plan.

RELATED

Alicia Munnell: The Social Security Fix No One Wants
The influential retirement scholar also talks to ThinkAdvisor about millennials’ grim retirement prospects and three crucial pieces of advice for...

What reaction to the GRA have you had from government?

High-ranking leaders from both parties are very intrigued that it bolts onto an already-established system, Social Security. No politician has [introduced] a bill – but we’re not doing this for next year. We’re planting the flag for a really good idea that can come up at the right time, which might be the next recession.

When do you think that might occur?

Most economists assume there’s an over 50% probability of a recession in two years. The economic expansion has gone on for 10 years now. There’s a lot of concern about debt. Most of us expect a correction. [Prior to Feb. 4], stocks have gone up about 300%, but earnings and sales of corporations have gone up less than 70%.

And that all means?

There’s a big mismatch between the valuations, the stock market and companies. What firms are doing with their money is buying other companies; they’re not investing in new ideas. Very little innovation is going on.

You first published this GRA plan, in less fleshed-out form, in 2008, the time of the financial crisis. What was the reaction then?

People were really open to it. The staff of Sen. Ted Kennedy, who died right around then, was very interested in expanding the Social Security system with these accounts. But short-term problems were the question: The banks and the auto industry had to be saved rather than [focusing on the long-term problem of funding retirement].

Do you think a GRA has a better chance now?

Absolutely. People will be very receptive to it when the stock market takes a dip. A lot of people are smarter and more sophisticated now. Having these ideas on the table when the time is right is very important. That’s why I’m doing what I’m doing.

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Old 03-02-2018, 10:02 AM
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https://www.timesunion.com/business/...n-12714085.php

Quote:
AARP pushes for statewide private pension plan

Spoiler:
Several hundred red-shirted members of the AARP fanned out across the state Capitol on Tuesday in a bid to convince state lawmakers to keep a voluntary saving retirement plan for workers in the final state budget.

Helping fire them up beforehand, Lt. Gov. Kathy Hochul said the plan, now part of Gov. Andrew Cuomo's proposed 2018-19 budget, will help some 3.5 million New Yorkers who don't now have a way to save for retirement through their jobs.

The "Secure Choice" plan would be voluntary for both businesses and workers, she said. And businesses do not have to match whatever a worker puts in, so there is no expense, either, Hochul said.

The half of the state's private-sector workforce that does not have either a pension plan or 401(k) from their jobs tend to be predominantly employed at smaller businesses, earn relatively low wages, be younger, and be an ethnic minority, according to AARP statistics.

"Women are particularly vulnerable because over their lifetimes they are paid less than men, and by retirement, many slip into poverty," said Hochul. "We our state, we believe that the Secure Choice ‎payroll deduction will create savings that will protect our seniors after a lifetime of work."

Workers' contributions to the Roth-style individual retirement accounts would be professionally invested and managed through the New York State Deferred Compensation Board, a three-member body that already manages such retirement plans for counties, cities, towns, villages, school districts, community colleges, public benefit corporations, and special districts.

Investment earnings on the after-tax contributions are tax-free, as are withdrawals after age 59 1/2.

Kojenwa Moitt, owner of a small public relations firm in Brooklyn, came to Albany to support the plan. "I have wonderful people who work for me, and I owe them that," she said.

Also speaking on behalf of the proposal was personal finance author Jean Chatzky, who is the financial editor of the Today Show on NBC.

Individual retirement accounts that workers can take with them from job to job are critical in an era where the average person will hold 12 jobs during their lifetime, she said. "This is far different from the case for our parents and grandparents," said Chatzky.

It appeared that many of the AARP volunteers there to lobby lawmakers already had a secure retirement themselves, but still want to see to it that others do, as well.

When state Sen. Diane Savino, chief Senate sponsor of legislation similar to the governor's proposal, asked the volunteers how many were retired government workers, a sea of hands went up.

Three dozen organizations from across the state have joined AARP in signing a letter to Senate Majority Leader John Flanagan, Assembly Speaker Carl Heastie and Senate Coalition Leader Jeff Klein, urging support for the measure in the final state budget due April 1.

AARP New York State Director Beth Finkel said the measure will both help New Yorkers prepare for retirement and also "not become dependent on government later in life."



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Old 03-27-2018, 10:46 AM
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http://www.pewtrusts.org/en/research...urity-payments
Quote:
ISSUE BRIEF

Auto-IRAs Could Help Retirees Boost Social Security Payments
Using savings to delay claiming the federal benefits could mean larger monthly checks in later years
Spoiler:
Overview
As the focus of the private sector retirement system has shifted in recent decades from traditional pensions to defined contribution plans, worker savings have played an increasingly critical role in ensuring retirement security. And that means workers must consider how best to use their investments. Retiring workers may be able to use their retirement savings, among other options, to delay the start of Social Security benefits. Postponing these initial claims can be beneficial: The increases in monthly Social Security benefit payments vary, but the gain from a year’s delay can top 8 percent.

Many states are looking at setting up individual retirement accounts (IRAs) with automatic enrollment—known as auto-IRAs or Secure Choice programs—for private sector workers without workplace retirement savings plans. Half of U.S. states have considered establishing these IRAs and five—California, Connecticut, Illinois, Maryland, and Oregon—are implementing them. Under state auto-IRA programs, those without access to a retirement plan on the job are automatically enrolled and contribute a preset percentage of their wages or salaries. They can choose to opt out of the program or change the contribution percentage.

Savings in IRA accounts—whether state-sponsored or privately established—give workers more options as they reach retirement. For example, account owners could make regular withdrawals to supplement other retirement income, or they could convert their savings to annuities if appropriate. Retirees could use the balances as rainy day savings to cover large repairs, medical bills, or any other purpose.

This brief looks at the possibility of using auto-IRA balances to help delay taking Social Security. Specifically, auto-IRA participants who retire at age 62 could use their accounts as a short-term income source—and fund the first months or years of retirement with monthly withdrawals from these IRAs in amounts equal to the Social Security benefit that would have been available at that age.

When these workers claim Social Security at a later date, they then would receive a higher monthly benefit. For example, if a person retires at age 62 and is entitled to a $700 monthly benefit from Social Security—and also has $8,400 or more in a state auto-IRA account—he or she could withdraw $700 a month from the IRA for a year. When the retiree claims Social Security at age 63, the benefit would be $750 a month. (See Table 1.)

To examine the potential for using auto-IRAs to increase total retirement benefits, Pew worked with the Social Security Administration (SSA), which used its Modeling Income in the Near Term (MINT) microsimulation model. The simulation assumed the state auto-IRA plans had a 3 percent default contribution rate, meaning that 3 percent of workers’ salaries would be contributed to the accounts starting in 2019 unless they take other action. The model takes into account workers’ ability to opt out and the probability that some will contribute amounts different from the default. It also captures the demographic characteristics of those likely to take part in state- sponsored auto-IRAs. For example, research shows that workers who do not have access to a retirement plan on the job are more likely than the workforce as a whole to be young, members of minority groups, earning lower incomes, and working for smaller employers.1

Among the key findings:

Participants in auto-IRA accounts could see Social Security benefit increases of nearly 7 percent to slightly more than 8 percent for each year they use their account savings to delay claiming these benefits.
The modeling shows that by 2050, after a hypothetical state-sponsored auto-IRA program has been in effect for 31 years, almost 40 percent of participants could delay claiming Social Security by a year or more. One- fifth of all savers could delay starting these payments for at least two years.
This strategy could boost Social Security payments for a wide range of people. For example, the modeling shows that Hispanic workers often could accumulate enough funds in their auto-IRA accounts to be able to delay taking Social Security for as long as, and sometimes longer than, other groups.
Depending on their needs, many workers still might want or need to claim Social Security at age 62. Certain groups, such as unemployed workers, those with health problems that make work difficult or impossible, or those with lower-than-average life expectancy, may want to take their benefits sooner. The strategy, therefore, may not be appropriate for everyone.

The Social Security connection
For people born in 1960 or later, the normal retirement age for Social Security is 67.2 Those who start collecting benefits at an earlier age receive payments over a longer period than do those who start at age 67 or later.

Because the Social Security benefit formula is structured to keep total lifetime benefits relatively constant in order to eliminate any financial advantages from claiming early, this translates into lower monthly benefits for those who take benefits earlier.3 These reductions are permanent.

That means that a worker who claims Social Security benefits at age 62 would receive 30 percent less in the monthly benefit, as shown in Table 1, than would someone claiming at age 67: The worker who starts collecting at age 62 would receive $700 a month, compared with $1,000 for the worker who waits until age 67. Delaying payments for a single year increases payments by about 7 to 8 percent, depending on the claimant’s age.

Claiming benefits later therefore can mean significantly greater monthly and annual Social Security benefits.4 Delaying the start of these payments can be especially advantageous to married couples, because when the recipient dies, the surviving spouse continues to receive the higher of the two spouses’ benefits whether or not he or she was the primary earner.5

Results from microsimulation modeling
At Pew’s request, the SSA used its microsimulation model to explore how many retirees could use their auto-IRA accounts to delay claiming Social Security by one or more years.6 The SSA modeled savings in auto-IRA plans assuming that participants contribute a default rate of 3 percent of their salaries to their accounts, with some eligible workers contributing more, some less, and some opting not to participate at all. In order to be eligible to participate in an auto-IRA plan in a given year, a worker must be over age 18, must work for an employer with 25 or more employees, and must not have access to a retirement savings plan or traditional pension through an employer. Workers were assumed to start contributing in 2019. The model assumes that account assets are invested in life cycle portfolios linked to worker age with allocations updated annually.7

Table 2 presents results for workers who contribute to auto-IRAs for one to 31 years. By 2030, a worker would have had the opportunity to contribute for 11 years, and by 2050 participating workers would have been able to contribute for 31 years. Many workers will contribute for less than the maximum possible years because workers are expected to enter and leave the auto-IRA program, depending on changes in their employment situation and whether the employers already offer retirement savings plans. The microsimulation modeling accounts for such changes in employment and pension coverage. Additionally, older workers who entered the auto-IRA system just a few years before retiring will have contributed for fewer years.

Still, the results indicate that a sizeable percentage of auto-IRA participants could use their account balances to delay claiming Social Security by at least a year. (See Table 2.) By 2050, 38.7 percent of workers in these programs could delay claiming Social Security by a year or more. A fifth of retirees could delay claiming for at least two years.

The outcomes are moderately progressive in that they show benefits for some groups that have a hard time saving in traditional retirement systems. For example, the modeling indicates that Hispanics would be able to use their auto-IRA accounts to delay claiming Social Security benefits for lengths of time similar to, if not greater than, other groups. This may be because Hispanic workers are less likely to work for an employer who offers a retirement plan,8 so that Hispanics on average would participate in auto-IRA plans for longer periods of time than would other racial or ethnic groups—and therefore accumulate relatively higher auto-IRA balances. That money then could be used to delay Social Security benefits longer.

The analysis also shows that workers with the most education (a college or graduate degree) and the least education (less than a high school diploma) may be able to delay taking Social Security for longer periods than may others. For the highly educated, that is because of the interaction between higher earnings and Social Security’s benefit structure. More education is associated with higher earnings,9 and higher earners would contribute more to auto-IRAs each year they participate, subject to contribution limits.10 At the same time, Social Security’s benefit formula replaces less preretirement income for higher earners than for lower-income earners.11 Because of these two factors, higher earners reach retirement with higher account balances that they could use to “buy” or replace more months of Social Security benefits. Compared with those with a college degree or more, workers with the least education tend to have less access to employer-provided pensions or savings plans and could participate for more years in a state-sponsored auto-IRA plan and accrue relatively higher balances.


Other considerations
The strategy of using auto-IRAs to delay claiming Social Security may not suit everyone. Many workers will still want or need to start receiving Social Security benefits at age 62. Some may be unemployed or underemployed, and need the income; others may face the possibility of dying early, and therefore might not benefit from delaying the start of Social Security. Others may need to claim Social Security before the normal retirement age because of health problems that are not severe enough to warrant qualification for Social Security Disability Insurance.

For those workers who need to claim Social Security benefits early, the money in an auto-IRA account then could provide a rainy day fund or a modest addition to retirement income.12

Retirees with lower-than-average life expectancies would be able to increase monthly benefits using this strategy, but doing so could have other implications. They might receive lower total benefits over their lifetimes because Social Security’s actuarial adjustments for different claiming ages are calculated to provide a constant level of lifetime benefits for retirees with average lifespans. For a person with a shorter life expectancy in retirement, higher monthly benefits over a shorter-than-average lifespan could mean lower total lifetime benefits.

Social Security will face a financial shortfall in the coming decades, with the impact likely to be felt starting in 2034. Under the current structure, the program will be able to pay only about 77 percent of scheduled benefits that year, leaving many of those claiming benefits in potential limbo.13 That could affect how those with auto-IRAs who turn 62 around that time approach their Social Security benefits. It is not clear how Congress will address the Social Security shortfall: Possible solutions include benefit cuts, payroll tax increases, or infusions of cash into the program. Policymakers may or may not act to shore up the system, which boosts the need to help workers build retirement resources through their own savings.

Conclusion
Although many workers link retiring from the workforce with starting Social Security benefits, the two are actually independent of one another. The state-sponsored auto-IRA accounts either under consideration by policymakers or already being implemented have the potential to help workers leave the workforce when they choose:

Their IRA savings could help meet their day-to-day needs if they decide to delay claiming Social Security. This approach may not be appropriate for all, but for those who could take advantage of it, the strategy could mean higher Social Security payments later in their retirement years.

Acknowledgments
At the Social Security Administration, Dave Shoffner capably ran the MINT model using parameters derived from public use datasets and agreed-upon assumptions related to auto-IRA implementation. Mark Sarney and Shoffner provided valuable input and comments throughout the research and writing process. We are grateful for their patient and enthusiastic collaboration on this project.

Methodology
The Social Security Administration used its Modeling Income in the Near Term (MINT) microsimulation model to produce the data in this brief. In order to forecast retirement income, MINT projects work histories, mortality, marital status, and disability status for all individuals in the simulation on a national level. The SSA’s modeling for this project incorporates several assumptions. Specifically, in order to be eligible to participate in an auto-IRA plan, a worker must be over age 18, must work for an employer with 25 or more employees, and must not have access to a retirement savings plan or traditional pension through an employer. Workers are assumed to start participating in 2019. Rates of participation in auto-IRA plans are based on results of Pew’s survey of employees, “Worker Reactions to State-Sponsored Auto-IRA Programs.”14 Workers are assumed to access their accounts at retirement, which in the MINT model is interpreted as working less than 20 hours a week. Results are calculated on a national basis. Income quintiles are as follows (in real 2015 dollars):


Endnotes
The Pew Charitable Trusts, “Who’s In, Who’s Out” (2016), http://www.pewtrusts.org/~/media/assets/2016/01/ retirement_savings_report_jan16.pdf; The Pew Charitable Trusts, “Preparing for Retirement: More Findings From a Survey of Public Workers on Retirement Benefits” (2015), http://www.pewtrusts.org/~/media/ass...vey-report.pdf.
For a complete schedule of normal retirement ages by year of birth, see Social Security Administration, “Normal Retirement Age,” https://ww.ssa.gov/OACT/ProgData/nra.html.
For the first 36 months (three years) benefits are claimed before the normal retirement age (NRA), they are reduced by five-ninths of 1 percent for every month before the NRA. The total reduction for the first 36 months is 20 percent. For every additional month below the NRA, the benefit is reduced by 20 percent plus five-twelfths of 1 percent. For more information, see Social Security Administration, “Program Operations Manual System,” https://secure.ssa.gov/apps10/poms.nsf/lnx/0300615101.
Gila Bronshtein et al., “Leaving Big Money on the Table: Arbitrage Opportunities in Delaying Social Security” (2016), http://siepr.stanford.edu/system/fil...S%20Sept12.pdf.
Jeffrey Diebold, Jeremy Moulton, and John Scott, “Early Claiming of Higher-Earning Husbands, the Survivor Benefit, and the Incidence of Poverty Among Recent Widows,” Journal of Pension Economics and Finance 16, no. 4 (2017): 485–508, doi:10.1017/S1474747215000438.
For more information on the Social Security Administration’s Modeling Income in the Near Term model, see the Urban Institute Urban Institute, “A Primer on Modeling Income in the Near Term, Version 7 (MINT7)” (2013), https://www.urban.org/research/publi...ew/full_report.
Annual real rates of return are assumed to be 2.9 percent for government bonds, 3.4 percent for corporate bonds, and 6.4 percent for stocks. Annual administrative fees are 0.75 percent of assets.
The Pew Charitable Trusts, “Who’s In, Who’s Out.” Only 38 percent of Hispanic workers reported having access to an employer-based retirement plan, compared with 63 percent of white non-Hispanic workers, 56 percent of black non-Hispanic workers, and 55 percent of Asian non-Hispanic workers.
See Bureau of Labor Statistics, “Unemployment Rates and Earnings by Educational Attainment, 2016,” “Unemployment Rates and Earnings by Educational Attainment, 2016,” last modified Oct. 24, 2017, http://www.bls.gov/emp/ep_chart_001.htm; http://www.bls.gov/emp/ep_chart_001.htm; and Anthony P. Carnevale, Stephen J. Rose, and Ban Cheah, “The College Payoff: Education, Occupations, Lifetime Earnings,” Georgetown University Center on Education and the Workforce (2011), https://cew.georgetown.edu/cew-repor...college-payoff. Note that the differences in lifetime earnings may in part reflect the underlying capabilities and characteristics of those individuals obtaining additional formal education and cannot be wholly attributed to the degree itself.
In 2017, individual retirement account contributions were capped at $5,500 per worker. Workers over age 50 were permitted to contribute an additional $1,000, bringing their limit to $6,500.
Michael Clingman, Kyle Burkhalter, and Chris Chaplain, “Replacement Rates for Hypothetical Retired Workers,” Social Security Administration, Actuarial Note No. 2017.9 (2017), https://www.ssa.gov/oact/NOTES/ran9/an2017-9.pdf.
Workers who claim Social Security before the normal retirement age are also subject to the retirement earnings test (RET). This provision reduces a person’s benefit by $1 for every $2 of earnings over an exempt amount. In 2017, this exempt amount was $16,920, although this threshold rises every year with the average wage index. Amounts withheld under the RET are returned to the worker, in the form of higher benefits, after he or she reaches the normal retirement age.
The Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, 2017 report, July 13, 2017, https://www.ssa.gov/oact/TR/2017/tr2017.pdf.
The Pew Charitable Trusts, “Worker Reactions to State-Sponsored Auto-IRA Programs” (2017), http://www.pewtrusts.org/en/research...o-ira-programs.
http://www.pewtrusts.org/~/media/Ass...rity_Brief.pdf
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Old 04-03-2018, 09:25 AM
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http://www.governing.com/topics/mgmt...vings-gap.html

Quote:
Think Income Inequality Is Bad? Retirement Inequality May Be Worse.
The savings gap is a looming crisis, and states aren’t sure how to help.
Spoiler:
For years, salon owner Luke Huffstutter, of Portland, Ore., wanted to offer his employees a way to save for retirement. Costs were too steep for the small company, though, and few employees took the initiative to set up 401(k) plans on their own.

But last summer, Oregon launched a retirement savings program that automatically enrolls employees in Roth IRAs, the first such state-sponsored program in the nation. Huffstutter signed up, and most of his 38 employees are now enrolled. “When we made it easy, they all jumped on board,” Huffstutter says. “The fact that they’re saving, and never were before, is a huge deal.”

Across the country, a large portion of American workers lack any retirement account or haven’t saved nearly enough to retire. An updated index published by the Center for Retirement Research at Boston College indicates half of working-age U.S. households risk being unable to maintain their pre-retirement standard of living once they stop working. Attention has shifted to how state governments and some localities might step in, despite Congress rescinding a rule that made it easier to establish savings programs.

RELATED
What’s Driving Personal Income Growth in States Legal or Not, States Forge Ahead With 401(k)-for-Everyone Plans Study: Savings Program Helps Poor Put Aside 4 Times More Retirement Experts to New Government Employees: Think for Yourself
In recent years, rising home values and stock market gains have led to slight savings improvements for American households overall. Over the longer term, however, an increasing number of workers will face financial challenges in retirement, with the share of working-age households unprepared having climbed about 20 percentage points since the late 1980s. A range of factors drive this trend: a higher Social Security retirement age, longer lifespans and lower interest rates. “Lots of people will end up without retirement income other than Social Security,” says Alicia Munnell, the center’s director.

The outlook is particularly bleak for those on the lower rungs of the income ladder. A steady shift away from guaranteed pensions to defined contribution savings plans has contributed to more savings inequality over the long term. Escalating housing costs and stagnant earnings for many lower- and middle-income families are further squeezing their retirement accounts. Meanwhile, wealthier households are reaping the benefits of climbing investment values.

All of this explains why the latest data from the federal Survey of Consumer Finances reflect solid savings growth for the most affluent families with the top 20 percent of household incomes, but flat retirement savings for everyone else. Vast disparities are also found across demographic groups. When the average liquid retirement savings of white families is compared with that of African-Americans and Hispanics, the gap has widened fivefold over the past 25 years, according to the Urban Institute. Young people, too, haven’t amassed the same wealth their parents did at comparable ages.

The Urban Institute’s Signe-Mary McKernan says that savings and wealth discrepancies are more critical than often-cited income inequality. By one measure, she found racial wealth inequality, or assets minus debts, to be three times worse than income inequality. Disadvantaged groups are less likely to own homes. Many aren’t offered retirement plans through employers, or they participate less frequently.

Inadequate retirement savings carry serious long-term implications for governments as well as citizens. They create an expanding cohort of residents who have to rely on government services or who might, for instance, miss property tax payments because they can’t pay other bills. “It matters not only for families and individuals, but for their cities and communities,” McKernan says.

The single biggest hurdle for many is access. By most estimates, about half of private-sector workers aren’t offered plans through employers. They tend to be in low-wage jobs, or working for smaller companies uncomfortable with the administrative costs of retirement plans.

Interest in the issue has mounted in state legislatures. Most have debated or are considering bills to improve access to retirement savings plans, with nine states enacting legislation, according to the Pew Charitable Trusts. “State and local initiatives may offer the best hope to boost retirement savings,” McKernan says.

The state that’s furthest along is Oregon, which began rolling out the first phase of its OregonSaves retirement plan last year. OregonSaves is a public-private partnership overseen by the state treasury department. All employers who don’t offer their own retirement accounts are required to participate in the program, regardless of workforce size. Employees choose from a limited menu of three investment funds to make options simple and avoid confusion. Contributions to Roth IRAs are then deducted from workers’ paychecks, with no fees paid by employers.





Employees are automatically enrolled unless they opt out. Extensive research by behavioral economists concludes that this auto-enrollment component is crucial in nudging workers to save and allowing plans to build up large pools of participants. A similar but recently terminated federal program, known as myRA, didn’t automatically enroll participants, and few signed up. OregonSaves is working better. About 70 percent of employees in the first wave of registered businesses chose to stay in the program rather than opt out. “When we move from a place where around half the people are saving to where most are saving for retirement, it changes the dynamic dramatically,” says Lisa Massena, executive director of OregonSaves.

Congress attempted to block states from facilitating their own plans last year when it repealed an Obama-era rule exempting plans from regulations outlined in the Employee Retirement Income Security Act. It’s possible that some plans could face legal challenges as a result. But in an editorial in the Benefits Law Journal, editor-in-chief David Morse wrote that legal arguments against state-sponsored automatic IRAs were “easily brushed aside.” The rollback doesn’t appear to be stopping states from forging ahead, either. OregonSaves is not contingent on the rule change as its authorizing legislation was passed in 2015, before the exemption was approved.

Another challenge state-sponsored plans must confront is that program costs will rise faster than revenues as investment returns gradually accumulate. The Oregon program charges participants 1 percent of annual assets, but other programs could be forced to levy higher fees to cover the costs.

Programs sponsored by local governments remain fairly limited. San Francisco has promoted a savings program that provides cash incentives if participants meet savings requirements. The Seattle City Council recently approved a city-facilitated defined contribution program for those without plans through private employers.

More states will soon launch their own programs, and it’s always possible that Congress may revisit the issue at some point and offer a federal solution. Regardless, though, demand for retirement savings options, particularly among large numbers of low-income workers and those in the expanding gig economy, is only going to keep increasing.

Mike Maciag | Data Editor | mmaciag@governing.com | @mikemaciag




https://hbr.org/2018/03/americans-ha...to-do-about-it
Quote:
Americans Haven’t Saved Enough for Retirement. What Are We Going to Do About It?

Spoiler:
The shift from defined benefit pension plans to employee-directed defined contribution 401(k)s has led us to an impending retirement crisis.*Among Americans between 40 and 45 years of age, for example, the median retirement account balance is just*$14,500 —*less than 4%*of what the median-income worker will require in savings to meet his retirement needs. What’s worse, Social Security currently provides a declining percentage of the required retirement income. So what’s the solution? One proposal is a*Guaranteed Retirement Account that would travel with an employee from job to job.

Phil Ashley/Getty Images
Each year, BlackRock, the world’s largest asset manager, sends a much-anticipated letter to leading CEOs. This year, chief executive Larry Fink’s focus was on why it is imperative for business to contribute to society. One of the first big issues he highlighted was retirement:
“Many [individuals across the world] don’t have the financial capacity, the resources, or the tools to save effectively; those who are invested are too often over-allocated to cash. For millions, the prospect of a secure retirement is slipping further and further away*— especially among workers with less education, whose job security is increasingly tenuous. I believe these trends are a major source of the anxiety and polarization that we see across the world today.”
We agree: Over the last four decades, changes across corporate America have put workers and the broader U.S. society at risk. We’ll talk more about the risks in a bit, but first it’s worth outlining how we got here.
The Road to the Retirement Crisis
Ultimately, the shift from defined benefit pension plans to employee-directed defined contribution 401(k)s is the major driver of the impending retirement crisis. Beginning in the 1980s, this move helped companies reduce their retirement liabilities and better meet their quarterly financial targets, but put an unmanageable burden on employees. For 401(k)s to be effective, for example, contributions must be made consistently throughout a worker’s career. In practice, people tend to make contributions sporadically. They also struggle in choosing contribution levels and investment options, and avoiding the temptation of using their savings for other needs.
Even when contributions are made, 401(k)s tend to earn subpar returns on average due to limited investment strategies and high administrative expenses. Employees in defined contribution plans often do not have significant investing expertise and earn rates of return that are substantially below professionally managed pension plans. When workers near retirement have to decide how to withdraw funds, determine a spending rate, and map out an investment strategy, many lack the expertise to do so effectively.
The result is that many workers are left with insufficient nest eggs for retirement and won’t be able to maintain the economic position they achieved while working. Among Americans between 40 and 45 years of age, for example, the median retirement account balance is just $14,500 — less than 4% of what the median-income worker will require in savings to meet his retirement needs. What’s worse, Social Security currently provides a declining percentage of the required retirement income. For a median income worker, Social Security minus Medicare premiums today covers about 29% of their pre-retirement income, down from 40%*two decades*ago. In addition, less than four years from now, Social Security costs are projected to begin exceeding revenues until that program’s Trust Fund is fully depleted in 2034. This will put further pressure on Social Security benefits.
Based on these trends, we predict the U.S. will soon be facing rates of elder poverty unseen since the Great Depression; in fact, one study shows that more than one in three retiring Americans will find themselves in or near poverty in the next 10 years. This wave of older poor Americans will strain our social safety net programs and budgets as the country copes with providing low-income elder shelter, food, and health care.
This will likely not just have an impact on state and federal governments; it could also tear at the social fabric of America in fundamental and destructive ways. It’s bad enough that incomes have stagnated for all but the richest Americans; what happens when an entire generation, many of whose members have worked hard all their lives, suddenly have little to show for it? Polls showing that large majorities of the population worry about retirement security should be a warning sign to business leaders and politicians alike.
One Potential Solution
The good news is that fixing the coming retirement crisis is possible. It won’t involve reinstituting traditional pensions, however. Why? The first reason is the current nature of competition. If an individual company tries to ensure their workers have a secure retirement, it burdens them with an added cost not shared by their competitors. This will make broad adoption much harder than if a level competitive playing field can be established.
More importantly, a company-by-company approach is ill-suited to today’s increasingly mobile workforce. Employees are increasingly likely to move from job to job rather than make their career at a single organization, and are generally cashed out of existing 401(k)s by their old employers and have to start all over again. This doesn’t even begin to tackle the issue of freelancers, contractors, and gig workers who now, more than ever, need a portable pension-type benefit that does not burden employers or taxpayers with unfunded liabilities. We need a holistic solution.
In our book, Rescuing Retirement, we put forward such a plan. It requires no new taxes, does not increase the deficit, and actually reduces the administrative burden on companies that sponsor plans.
Under our proposal, every worker will receive a personal Guaranteed Retirement Account (GRA). Workers maintain ownership of this account as they move from job to job, automatically contributing at least 1.5% of every paycheck to the GRA until they retire. A matching 1.5% is provided by each employer. To offset the required employee contribution, the plan gives every worker up to a $600 tax credit. This almost fully pays for the contribution for people earning below median income — our most vulnerable workers. We accomplish this in a deficit neutral way by redeploying the existing tax deductions for 401(k) contributions. Those deductions disproportionately benefit high income employees who are not at risk in retirement.
To achieve higher returns with lower risk, savings in the GRAs are pooled and invested. Workers select a professional pension overseer, which could include government entities such as state pension funds or private sector pension managers. Pooling GRAs in this way reduces administrative costs and gives GRA holders access to higher returning investment products and the best asset managers. Upon retirement, the GRA is automatically converted into a government guaranteed annuity based on their GRA balance which provides consistent, life-long income for the employee and his or her spouse. This way, retirees can never outlive their savings.
Why It’s a Good Deal for Companies
We believe businesses will find the 1.5% contribution rate affordable and attractive for several reasons:
• The cost of employer contributions is substantially offset by relief from the burdensome administration and regulatory burden of existing plans (determining investment options, managing early redemptions and departing employees, negotiating fees, etc.) Many employers will be able to reduce expenses as compared to traditional pension plans or 401(k)s.
• A modest, one-time price increase of less than 1% on their goods or services will fund the entire plan for most employers.
• Aging workers will be better able to retire, making room for younger workers. A 2017 study by Prudential and the University of Connecticut estimates that a one year delay in retirement age by one employee could cost an employer $50,000.
Our approach is even beneficial for small businesses not currently offering any retirement plans. Small businesses are like families, where owners know personally and care deeply about their employees. And yet, in 2016, less than 20% of companies with fewer than 24 employees sponsored any kind of retirement plan. This doesn’t mean they don’t want to help; a 2016 Pew survey found that small firms would welcome an easy solution to their employees’ retirement problems. The simple to administer GRA model would enable many small employers to do what they have wanted to do all along: take care of their workers in retirement without the cost, complexity, or liability associated with the other alternatives.
Most executives care about their people. They understand the basic idea that employees are the foundation of their company’s success, and deserve dignity and financial security in their old age. No leader wants to see someone who loyally dedicated his or her career to a company ending up in poverty. And yet due to the current set of short-term pressures placed on today’s business world — where a CEO is only as good as the last quarter’s results*— executives have offloaded volatile retirement liabilities onto workers who are ill-equipped to bear that burden.
To be sure, the solution doesn’t rest entirely on the shoulders of executives; public policy plays a huge role. But business leaders should be coming up with ways to help address the burden created in large part by pension changes they helped usher in. We’ve offered one potential approach; what will be yours?


https://www.ocregister.com/2018/03/3...ith-calsavers/
Quote:
John Chiang joins race to California insolvency with CalSavers – Orange County Register

Spoiler:
State Treasurer John Chiang, left, says he will join with then-Senate President Pro Tem Kevin de Leon, D-Los Angeles, right, in moving forward on de Leon’s plan to automatically enroll private-sector workers in state run retirement plans, during a news conference,Thursday, May 18, 2017, in Sacramento.
Before California and other states start new programs, wouldn’t it be wise if they first got their own financial houses in order? A case in point is the new California program originally called Secure Choice, even though it was neither secure nor a choice, but now is called CalSavers. It’s a state program to get low- and middle-income Californians to invest in a state-run defined contribution pension plan.
Similar programs have been enacted in the states of Illinois, New Jersey, Maryland, Oregon and Washington. And the list may be growing. According to a recent Associated Press report on the plans, “New York is among a growing number of states considering legislation to create government-sponsored payroll-deduction retirement programs for small businesses.”
The reason behind the programs, the article adds, is because “financial planners say” the plans “could be a relatively painless way to help Americans reverse a dismal record of saving for their golden years.”
State Treasurer John Chiang, in his March 17 op-ed, “CalSavers gives Californians a chance at a more secure retirement,” defended the program as part of his bid to become governor. This claim is not exactly true. It only provides a component of one’s total retirement planning efforts. But, why should the state insert itself?
As the only certified public accountant in the state Legislature and a financial planner, I can tell you that withholding programs can be provided for employees without state government involvement.
For fun, let’s look at the finances of all the state governments involved so far. Each one has a significant per capita unrestricted net deficit: New Jersey ($15,208), Illinois ($12,525), Maryland ($4,463), California ($4,263), New York ($2,297), Oregon ($599), Washington ($456).
It’s a classic case of, “Do as I say, not as I do.” Would you want a DMV-type department managing a portion of your nest egg? And let’s hope your funds are not used to prop up these fiscally challenged states.
Chiang attacked an earlier op-ed by Jon Coupal, the president of the Howard Jarvis Taxpayers Association, because “Coupal erroneously asserts that the program poses a financial burden to taxpayers. The fact is CalSavers is a voluntary savings plan for private-sector California workers that incurs no cost or liability to taxpayers or participating employers — none!”
This is also not exactly true. The initial subsidization of this program will be paid for out of the investment earnings of the participants. Translated: expect lower net yields.
Chiang also mentions CalSavers “is being hailed as the most significant expansion of retirement security since the passage of Social Security in 1935.” But the 2017 Annual Report of the Social Security Board of Trustees calculated the fund suffers a whopping $12.5 trillion unfunded liability — that’s with a “t.” Explain how this was a bragging point.
Participants can also expect social investing strategies once CalSavers gets up and going. Expect severe restrictions on profitable investments, as was already seen with CalPERS, which lost $3 billion since its divested from tobacco stocks in 2000. Then it divested from coal companies, which are booming. Now Chiang is trying to get CalPERS to divest from gun companies.
California workers already enjoy many options to invest on their own. If Chiang wants to help our citizens plan better for retirement, why did he oppose President Trump’s middle-class tax cuts, which leave people more to invest for their futures? And will he sign the initiative petition to repeal last year’s gas-tax increase, which annually robs $5.5 billion from Californians, money they could have put into retirement plans?
Life is not simple or easy. You need to impose self-discipline and save for your own retirement. And you need to manage your personal finances in a smart manner, based on your particular needs and constraints.
An expensive, government-run savings plan does not fit in this strategy. Sacramento, save us the shallow platitudes and stay out of our pockets, please.
John Moorlach, R-Costa Mesa, represents the 37th District in the California Senate.


https://www.ai-cio.com/news/blacksto...ed-washington/
Quote:
Blackstone Official Pushes Required Retirement Savings, Backed by Washington

Spoiler:
At CalSTRS,*to help people without enough money to retire, Tony James pledges to promote his idea to Washington big-wigs.

Tony James Mandatory savings accounts, backed by the federal government, are the answer to the nation’s looming retirement crisis, a key executive at giant asset management firm Blackstone Group told California pension officials this week. And Hamilton “Tony” James, who has just relinquished the No. 2 job at Blackstone, said he will push to make it happen in Washington.
James told the board of the California State Teachers’ Retirement System (CalSTRS) on Wednesday that he plans to meet with President Donald Trump and members of his cabinet, including Treasury Secretary Steven Mnuchin, to push a mandatory savings account retirement plan.
James, who said he voted for Trump, did not indicate when such a meeting could occur. But as guest speaker at CalSTRS retreat meeting in Riverside, California, he passionately advocated for the plan he co-authored with New School labor economist Teresa Ghilarducci.
The plan would require both workers and employers to separately contribute 1.5% of their salary into accounts to be managed by money managers.
James, who stepped down last month as Blackstone’s president and chief operating officer to take the role of vice-chairman, said the retirement savings program is necessary because of a coming debacle with not enough retirees able to afford retirement.
“It’s a looming crisis,” he told the board. “Right now, in the next 10 years, of the people turning 65, one-third will be in poverty. If we stay the way we are, we will have more poor, elderly people than during the Depression.”
James has been pushing the national retirement savings plan since the fall of 2015, but has been making a major effort this year with the publication of a book he co-authored with Ghilarducci, called, “Rescuing Retirement.”
He told the CalSTRS board that such a retirement plan would also be good for the approximate 15% of Americans who still have defined benefit plans, like the teachers in CalSTRS, because it would reduce resentment from members of the American public upset with their lack of retirement security.
He said defined benefit plans were “not broken,” but offered a pessimistic view of the rest of the American retirement savings system.
He referred to the Federal Reserve survey which found that almost half of American respondents would find it difficult, and 27% said they would find it impossible, to cover an unexpected emergency that cost them $400. “How are they going to voluntarily save?”
James said some Americans with 401(k) plans see only a 2% to 3% return annually. He said one problem is that US Labor Department regulations require daily liquidity so higher-returning, less liquid investment options like real estate, managed futures, and commodities are not available to participants.
He sees such less-liquid opportunities available under the new plan and professional money management multiplying returns for participants, similar to the higher returns of defined benefit plans. CalSTRS estimates it will earn a 7% return on an annualized basis, though whether those returns expectations are realistic is the subject of intense debate in the pension community.
There’s something in this plan for Blackstone, of course. Such less-liquid opportunities could also open the lucrative 401(k) market to Blackstone and other large financial firms.
James said he believes his plan could win the support of Congress.
Still, it won’t be easy. He said he has talked to both Democrats and Republicans in Congress who support the plan, but acknowledged that creating a coalition to support the idea might be difficult in the current divided political climate.
State Controller Betty Yee, who serves on the CalSTRS board, told James that California and other states are already developing their own plans for individuals without retirement coverage.
But James said those plans are state-specific and don’t help Americans who aren’t in a state sponsoring a retirement plan, something a national plan could guarantee.
Tags: Blackstone, CalSTRS, retirement, Tony James
By Randy Diamond

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