The Retirement Savings DrainDemos, a nonprofit advocacy group and a SCEPA partner on retirement security, published a report "The Retirement Savings Drain: Hidden and Excessive Costs of 401(k)s." Written by Policy Analyst and New School PhD student Robbie Hiltonsmith, the report reveals the excessively high fees and costs associated with 401(k) retirement plans that are hidden from plan holders. Hiltonsmith finds that the average two-member household will lose over $150,000 over their lifetime from their retirement savings to pay these fees - without their knowledge. More than 40 media sources and columns have covered the report, including an exclusive with Consumer Reports and pieces inReuters and the New York Post, among others. The media coverage has hinted toward other possibilities for retirement income security such as Guaranteed Retirement Accounts(GRAs). "What we need is a low cost set-it-and forget-it option," Hiltonsmith says. "You get your four percent return, the balances don't go up and down like a yo-yo and at retirement you get all or part of it as an annuity."

On June 20, 2012, Hiltonsmith appeared on Fox Business Network's Willis Report to discuss the dangers of hidden 401(k) fees. He says, "someone's going to be retiring off these 401ks but it's not going to be the ones saving."

I have been working on new research documenting that, despite the growing tax breaks and intensive advertising campaigns for 401(k) and IRA retirement accounts, Americans nearing retirement are more likely than previously expected to experience downward mobility in their golden years. Specifically, people ages 50 to 64 - 58 million in 2010 - will likely not have enough retirement assets to maintain their standard of living when they reach their mid-sixties.

Using data from the U.S. Census Bureau's Survey of Income and Program Participation (SIPP), SCEPA's new Fact Sheet, Near Retirees' Defined Contribution Retirement Account Balances, is the first to provide a breakdown of defined contribution (DC) retirement account balances by income.

SCEPA income chart

Three quarters of near retirees (ages 50 to 64) have annual incomes below $52,201, with an average total retirement account balance of $26,395 . When stretched out into an annuity over an average retirement lifetime, this sum does not provide a significant addition to a monthly Social Security benefit (see Table 1.) Further, the median value of retirement account balances for half of near retirees is zero, meaning that over half of this group has no retirement savings.

Individuals with incomes over $52,201 per year have more in their retirement accounts, but their balances are not high. Their average retirement account balance for this income group is $105,012. Because only a few people have very high balances, the median balance is much lower; 50 percent of people ages 50-64 in the top 25 percent of the income distribution have retirement account balances of only $52,000.

The numbers are lower than previous estimates based on the data set. Previous estimates rely on the Survey of Consumer Finances (SCF), which aims to measure the net assets of U.S. families by over-sampling people likely to be wealthy to provide more precise estimates of wealth. This includes assets that only the wealthy own, such as municipal bonds and business assets. In contrast, the SIPP allows researchers to conduct analyses of government programs for the low-income population, over-sampling the low-income population. Since the two data sets focus on different groups of people, SIPP estimates of retirement wealth differ from estimates based on SCF data and more accurately represent the American population.

Older AmericansIn collaboration with the W.E. Upjohn Institute for Employment Research, I published a report that details the corrosive economic effects the Great Recession has had, and continues to have, on older unemployed workers. The paper, Unemployed Older Americans: A Profile, is based on data from the U.S. Census Bureau's Survey of Income and Program Participation (SIPP).

The U.S. labor force is aging, and so are the people who are unemployed. In March 2011, the U.S. population comprised 305 million people, of whom 36.6 million were age 55-64; over a third (37.5%) of that population were not working -- 4.1% were officially unemployed, and 2% of those out of the labor force were discouraged workers. If we include discouraged workers among the unemployed, 4.8% of older Americans were willing to work but did not have a job in 2011. And these rates are up from the date the recession officially ended in March of 2009. At that time, the official unemployment rate for older workers was 3.04%, the discouraged rate was 1.71%, and the fraction of older Americans who were willing to work but unable to find a job was 3.57%.

While the harm caused by unemployment is unique to each person, this study focuses on the staggering variety of challenges and perils shared by older people. Our analysis results in three broad findings.

First, across every category, for instance male, female, white or nonwhite, an older unemployed person is now more likely to be unemployed longer than any other age group, including teenagers (Johnson 2009). As a result, older people who lose their jobs have a higher risk of remaining unemployed and withdrawing permanently from the labor force in involuntary early retirement.

Second, older workers who retire earlier than expected are less likely to have pension income or household wealth compared with those who retire voluntarily (Munnell 2008) and face higher rates of depression and anxiety (Bender and Jivan 2005 and Bonsang and Klein 2011).

Third, being unemployed is always trouble, but if you are in your late fifties, but not yet 64, you are in big trouble. Why? The age for eligibility for Medicare is age 65, but older people in general, and especially those who are unemployed, tend to experience a steep increase in need for medical care earlier than age 65 (Tu and Liebhaber, 2009). We also find that a loss of health care coverage among this group may cause economic losses beyond those who are unemployed and aged 55-64. The larger population may pay a higher price as uncompensated health care expenses incur. Moreover, since older Americans are more likely to withdraw from the labor force after experiencing a long bout of unemployment (Coile and Levine 2006), we speculate about whether job retraining programs designed to draw this population back into the workforce make sense.

This research is timely in light of the current discussion of the micro impacts of the Great Recession and for debates about the role of jobs and healthcare policy.

California flagI'm happy to announce that California Governor Jerry Brown signed the California Secure Choice Retirement Savings Trust, SB 1234, into law. The Act will expand access to retirement savings plans to the 6.3 million private sector workers who currently have do not have access to a retirement plan through their employer. The law creates the first retirement savings plan for private-sector employees administered by the state.

Statements of support for the law from State Senator Kevin de Leon, who co-sponsored the bill, and the National Conference on Public Employee Retirement Systems (NCPERS) are available online. Articles from the New York Times, which recently came out in support of the law, the Sacramento Bee, and 89.3 KPCC Southern California Public Radio also cover this landmark legislation.

The California Secure Choice Retirement Savings Program will provide a low-fee, low-risk savings vehicle that would be a win-win for employers and employees in the state. Employers will not have to worry about fiduciary or administrative duties; they will have to do nothing more than send a small percentage of an employee’s paycheck via payroll deduction into the new program, unless the employees opt out. Employees will have an efficient way of saving for retirement through the workplace.  The new savings program would achieve economies of scale that would be passed on to employees in the form of lower fees without adding to the state’s pension obligations. The state must conduct a feasibility study before implementing its plan.

When half of the workforce has no retirement plan, it is more important than ever that we come up with innovative solutions – and the states are at the forefront of this fight. I hope they will be an incubator for a comprehensive national solution.  Guaranteed Retirement Accounts served as a model for the California legislation.

On September 14th, the Pension Rights Center, SCEPA, and Dēmos, a New York-based advocacy nonprofit, hosted a forum with state officials to discuss proposals to expand pension coverage for private sector workers at the state level. Titled “Retirement Security for All: A Forum for State Action,” the event included officials from California, Connecticut, New York, North Carolina, Pennsylvania, and Rhode Island. With an emphasis on collaborative reform efforts, the forum was an acknowledgement of the increasingly urgent need to address a lack of retirement security.

Earlier this year, Massachusetts became the first state in the nation to pass a state-administered retirement plan for the private sector. Its plan covers employees at nonprofit organizations, while California’s plan would cover any eligible private-sector worker. Other states and New York City are considering similar arrangements.

Working longer is often posed as a solution to the retirement crisis, or the systemic lack of savings for those nearing retirement. However, an often overlooked factor in policy debates calling for a raise in the retirement age is the clear evidence that life expectancy rates have not improved equally for all Americans.

Average life expectancy has increased markedly since World War II.  The average American born in 1950 would live to 68 years old.  By 1980, life expectancy would increase to 73.88 years and to nearly 78 years by 2007.[1]

These remarkable increases, however, belie a growing disparity of life expectancies among different socio-economic groups. The longevity of people in the top half of the income distribution has improved much more than those in the bottom half.[2] This increasing inequality of outcomes has occurred with remarkable speed.  For example, the Inter-American Development Bank estimates that from the 1983-1997 period to the 1998-2003 period[3] the differences in life expectancy between the highest 20% and lowest earning 20% of Americans (for those ages 35-76) grew from 0.7 to 1.5 years among women, and from 2.7 years to 3.6 years among men.[4]

Life expectancy at age 65 has improved the least for African American men and the most for non-Hispanic white men across race-sex groups.  In 2007, the average 65-year-old black man was projected to live 15.2 more years, whereas the 65-year-old white man would live 17.3 years longer.  This disparity is a wholly new development: from 1950 to 1955 elderly black and white men (and women in 1950) lived an average of 12.8 years (and average of 15 years for black and white women).[5] Although such demographic observations are telling, they do not explain the drivers behind the growing disparity of health and longevity outcomes.

To this end, other studies have sought to isolate a broader range of socio-economic variables.  One such detailed analysis by Meara, Richards and Cutler (2008) notes that education is a driving force behind longevity and mortality differentials.[6] They note that differentials in life expectancy among race-sex groups (at age 25) remained constant from 1990 to 2000, but that differences significantly increased between high- and low-education groups.  Indeed, low-educated women (both white and black) had statistically significant lower life expectancy in 2000 than they did in 1990.[7] Given the high correlation between education and life-time earnings, such findings reinforce the evidence of research analyzing the impact of income inequality on life expectancy and mortality.

Finally, what do these numbers suggest for retirement planning and policy?  Simply put, raising the eligibility age for Social Security and Medicare will have much worse impacts on some – generally more vulnerable – populations. Blindly increasing the retirement age will lead to higher older-worker unemployment,[8] more disability claims and worsening retirement prospects for those who can least afford it – and all this will come at a high social cost for state and local governments alike.

A more realistic goal is to have staggered retirement ages, as has been proposed in other OECD countries.  That means lowering the retirement age for those who entered the work force earlier (generally with less education, and who have earned less) and raising the retirement age for those who spent more time in post-secondary institutions, who generally earn more over their life time and who can afford healthier lifestyles.

In the September/October issue of Labor and Sense, Katherine Schicchitano kindly mentions my work on guaranteeing access to pensions.

The article, “Recent Battles in Wisconsin and San Jose Shows Why We Need Universal Pensions,” highlights the uncertain future of defined benefit pensions, or plans that guarantee payments throughout retirement, due to declining union membership. My proposal is mentioned as a strategy to assistant low- and middle-income households prepare for retirement.

With the recent passage of California legislation that creates retirement accounts for private workers, states are taking action to expand retirement security. I am working closely with state elected officials to support similar efforts across the country. Below is a summary of a new report on my state plan for reform, known as State GRA's.

STATE GUARANTEEDRETIREMENT ACCOUNTS: A Low-Cost, Secure Solution toAmerica's Retirement Crisis

The share of workers without any retirement plan at work has risen dramatically over the past decade. The percentage of workers whose employer did not sponsor any type of retirement plan rose from 39 percent to 47 percent—a 21 percent increase. This alarming trend is a call to action for state and local policymakers who want to prevent old age hardship by ensuring all workers can invest adequately, efficiently, and safely for their own retirement.

We propose states offer all workers a voluntary, low-fee, low-risk, State Guaranteed Retirement Account (State GRA) to help boost savings for retirement. State GRAs are individual accounts where benefits at retirement are based solely on contributions and returns.


Consistent contributions: as in a 401(k)-type plan, workers and/or their employers would contribute at least 3 percent of pay into their individual State GRA. Contributions could be channeled through the already-existing payroll deduction system, reducing administrative burden and minimizing costs.

Pooled investments: all individual account assets would be invested together in one large pool, with an emphasis on low-risk, long-term gains. Pooling takes advantage of economies of scale and minimizes financial risks.

Guaranteed returns: each account would be guaranteed to earn a return of at least 3 percent, or about 1 percent above inflation, protecting funds from the volatility of the stock market. Because funds are invested in longer-term assets as one large pool, the risk and costs associated with insuring the minimum guarantee would be negligible, and could be backed by private insurance contracts without posing any risk to the state or employers.

Portable accounts: Individual State GRAs would be portable; the account would automatically move with a worker from job to job.

Lifelong retirement income: at retirement, workers would convert all or part of their State GRA balance into an annuity—a guaranteed stream of income for life—to ensure that they do not outlive their savings.

Independent administration: a newly created independent board of trustees would oversee the plans' operations. The board would assume all fiduciary responsibility for the fund's investment decisions and administration.

Public investment management: costs could be minimized by using the already-existing public pension infrastructure to invest the funds. State pension funds operate on a not-for-profit basis and have highly skilled, professional investment managers and administrators that are charged with overseeing and investing more than $3.1 trillion in retirement savings. Assets in State GRAs would be kept in a separate investment pool from public pension fund assets.