retirement crisisToday I joined the Bipartisan Policy Center (BPC) as it launched its Personal Savings Initiative (PSI). As a member of the commission, we will study whether savings rates and available savings vehicles are meeting the retirement goals of Americans and the nation's investment needs.

The initiative is co-chaired by former Senate Budget Committee Chairman Kent Conrad, a Democrat, and Jim Lockhart, former Deputy Commissioner of the Social Security Administration under President George W. Bush.

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

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

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

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

In March, SCEPA Director Teresa Ghilarducci testified before the Minnesota House of Representatives in support of HF 2419, which would study the potential benefits of creating the Minnesota Secure Choice Retirement Plan, a state-administered retirement savings plan for public and private workers without access to retirement plan at work.

Ghilarducci presented SCEPA's report, 'Are Minnesota Workers Ready for Retirement,' which reports a 6% decline in employer-sponsorship of retirement plans in the state. The research supports the implementation of policies that help workers gain access to safe, affordable and efficient retirement savings vehicles to prevent downward mobility among seniors.
Minnesota Retirement Participation Rates
One of the most important aspects of the Minnesota Secure Choice Retirement Plan is that it is safe and cost-effective. The MN Secure Choice plan would facilitate voluntary employee contributions through a simple payroll deduction, rather than complicated private retirement plans that require participants to shoulder the risk and responsibility of finding and paying for the right financial advisor and/or choosing the appropriate investment options. Other advantages include pooled investments, diversified investment portfolio and access to professional money management firms.

On April 8, 2014, I testified before the Washington State Senate in Olympia and presented SCEPA's recently released study, "Are Washington Workers Ready for Retirement." This study finds that employer sponsorship of retirement plans in on the decline from 2000-2012. The availability of employer-sponsored retirement plans in Washington declined by two percentage points, from 62% to 60%. Four out of ten workers in the state do not have access to a retirement plan at work.
Washington State Retirement Data Graph
While this decline is smaller than in some other states, it follows a downward trend across the country. This trend means that, upon retirement, workers without access to a retirement plan during their working years will rely solely on Social Security and Medicare to survive. The support from these federal programs can be supplemented by personal savings, but, as we document below, workers without employer-sponsored retirement plans tend to be less financially secure overall and less able to save sufficiently (if at all) for retirement.

Most workers had less access to retirement plans in 2012 than they did in 2000, but the decline has not been equal across social and economic groups. Particularly stark is the drop in the sponsorship rate for female workers, whose access decreased from 65 percent to 60 percent. Female workers in Washington experienced a decline in sponsorship at more than double the rate of workers' overall sponsorship reduction.

Washington's self-employed experienced a one-third drop in retirement plan sponsorship – falling to 14 percent from 20 percent.

Washington workers covered by a union contract experienced an increase in retirement plan coverage. One quarter of Washington's prime age workers were covered by a union contract in 2012 – an increase from 20 percent in 2000.

Overall, participation in an employer-provided retirement plan is low – only 49 percent of Washington's workers were enrolled in a retirement plan at work in 2012. In addition, nearly half (48 percent) of near-retirement households (ages 55-64) have no retirement plan at all. This is particularly worrisome since households without a retirement plan tend to be ill-prepared for retirement. Even those with employer-sponsored retirement plans may not be able to reach a comfortable replacement rate.

All workers deserve a retirement plan. Workplace retirement plans are a fundamental means to ensure retirement income security and this paints a discouraging picture of retirement readiness for Washington workers. Will this downward trend in the sponsorship and quality of retirement plans continue? If so, what can be done about it?

The leadership in Washington state can lead the nation in the effort to protect seniors against downward mobility in retirement by implementing policies to expand safe and secure retirement plans through the workplace.

Recently I talked to both the New York Times and Businessweek about the retirement crisis. In reading the Times piece, The Gray Jobs Enigma, I am impressed by reporter Steven Greenhouse's subtle message that the only way to ensure financial viability in old age is through a secure retirement account.

Businessweek focused on multi-employer pension plans in An Unpalatable Plan to Rescue Failing Pensions, using Hostess's bankruptcy as an example of a multinational corporation unable to fulfill their retirement pension promises after declaring bankruptcy. The Pension Benefit Guaranty Corporation (PBGC), a small federal agency that oversees the nation's private pension plans, can step in when corporations are unable to deliver on their pension promises. However, with the recent avalanche of failed corporations, the agency responsible for bailing them out may need a bailout itself. Last year, the PBGC posted an overall deficit of $35.6 billion.

This is a dangerous trend, not only for multi-employer plans, but single employer plans who will want to follow. For the long-term, the only viable solution to the retirement crisis is through Guaranteed Retirement Accounts.

I am honored my SCEPA working paper, "New Policies for an Older Unemployed Population" has made the top ten download list for the Social Science Research Network, (SSRN) for three different sub categories; Food Stamps and Food Assistance, Medicaid and Rates of Coverage! "New Policies for an Older Unemployed Population" outlines issues facing older unemployed workers, such as living with low incomes and without health insurance for longer periods of time due to increases in the duration of unemployment. I recommend expanding and reforming retraining programs to better accommodate the needs of older workers and the creation of tax incentives to encourage employers to hire older workers.

Alan Pyke of reviews the shrinking benefits of the 401(k) system after the recent announcement by AOL that the company will only provide matching funds to employees in one lump sum payment at the end of the year. 

In his article, "One Sneaky Corporate Trick Will Make Your Retirement More Insecure," he states, "The change means that workers lose the flexibility and portability that the 401(k) system of accounts provides, which has long been seen as a bright spot for workers in a dim overall system."

He includes my comment, "This move exposed the fatal weakness of the program and paves the way for all of us to think about a better system. The system enables employers to allow workers to contribute to a plan, but it in no way obligates them to make a match."

Pyke adds, "If even workers who are lucky enough to receive matching funds from an employer like AOL or IBM are having the value of that voluntary employer contribution undermined, then the myths about the 401(k) system are harder for financial advisers to maintain."

After much backlash, AOL retracted its decision and reinstated its former 401(k) policy matching contributions on a per-period basis rather than an annual lump sum. For more on AOL's redaction and what it means for retirement security, listen to my interview on NPR's Morning Edition segment, AOL Reverses Changes to Retirement Contribution

The Annual Robert Heilbroner Lecture on the Future of Capitalism:
Towards Full Employment, Financial Stabilization & Environmental Sustainability



The failure of austerity policies in both the United States and Europe is clear. But it's time to move beyond documenting failure. Now we need solid policy solutions that promote long-term economic recovery for working people, the poor, and the middle class - not just the 1%.

On February 12, Economist Robert Pollin presented SCEPA's annual Robert L. Heilbroner Memorial Lecture on the Future of Capitalism. Pollin proposed a post-austerity policy agenda that lays out a clear path to job creation and lowering public debt - while advancing greater equality and environmental sustainability.

Robert Pollin, Distinguished Professor of Economics at the University of Massachusetts-Amherst, received his PhD from The New School and studied under Robert Heilbroner. He is co-director of the Political Economy Research Institute (PERI) and co-author of a recent study that debunks the notion that austerity policies can promote economic growth by starving social spending.

This event celebrated the fall issue of The New School's Social Research journal, "Austerity: Failed Economics but Persistent Policy." It was jointly sponsored by Social Research: An International Quarterly, the Center for Public Scholarship, and the Environmental Policy and Sustainability Management Program at The Milano School.