Because benefits from Social Security average only about $1,200 per month, many American workers rely on employer-sponsored retirement plans to supplement their income in their senior years. These retirement plans have played a vital role in reducing the risk of lowered standards of living and poverty during retirement—but recent research has shown that employers are becoming less likely to offer them.
A January 2012 report by the New York City Comptroller's Office and the Schwartz Center for Economic Policy Analysis found that between 2000 and 2009, the percentage of employers in New York City sponsoring a retirement plan for any of their employees fell by 8 percentage points, from 48% to 40%. As a result, a growing group of New Yorkers is at risk of facing significant economic hardship in retirement. Currently, more than one-third (36%) of households in which the head is near retirement age (55-64 years old) will have to subsist almost entirely—and more than 50% primarily—on Social Security income, or will not be able to retire at all due to having liquid assets of less than $10,000.
In workplaces where employers still offer retirement benefits, plans are most commonly defined contribution (DC) plans, where each worker has an individual account such as a 401(k). Many DC plans charge high fees that eat away at returns, require workers to choose from a complicated menu of investment options, and are vulnerable to painful losses in bear markets. Since most retirees do not convert their lump-sum DC savings into annuities, they also risk prematurely exhausting their assets.
Nearly two million private sector workers in New York City do not have access to a retirement plan through their employer. For workplaces where no retirement plan currently exists, New York City Personal Retirement Accounts (NYC PRA) would pool employee and employer contributions into professionally-managed retirement funds, significantly boosting retirement income for participating workers.
WHAT THE NYC PRA OFFERS PRIVATE SECTOR EMPLOYEES:
- Full portability.
- Low fees due to economies of scale.
- Higher returns from professionally managed investments.
- Reduced risk of outliving retirement savings by providing a lifetime annuity.
- A significant supplement to Social Security. In some cases, employees would experience a more than 50% increase in retirement income.
- Guaranteed employer match.
- Automatic enrollment with the ability to opt-out at any time.
- Self-employed workers would be allowed to participate.
WHAT THE NYC PRA OFFERS EMPLOYERS:
- The ability to offer retirement benefits to their workers at a low cost.
- A choice between offering their own employer-sponsored retirement plan, such as a defined benefit or a 401(k) plan, and enrolling employees in the NYC PRA.
- Legal indemnity from fiduciary responsibility and benefits insured by the Pension Benefit Guaranty Corporation.
WHAT THE NYC PRA OFFERS TAXPAYERS:
- Retirement benefits without reliance on taxpayer dollars.
- Potential government budgetary savings by lowering the burden on social service agencies to provide for seniors who lack retirement income.