The Urban Institute recently published a Retirement Security Data Brief that shows Americans are contributing more to defined contribution (DC) plans of the 401(k) variety than to defined benefit (DC) pension plans as less employers offer DB plans to their employees. This supports SCEPA research, which has documented the effect of this structural shift in the labor market - a downward trend in individual’s ability to retire at their current standard of living due to high fees and market losses.

In their documentation of this trend, The Urban Institute’s analysis can be misleading. It shows that when adjusted for inflation, DC assets have increased by 5 percent from 2007 to 2012, suggesting that DC accounts have recovered from the recession and that these accounts can recover from market vulnerability. However, this calculation includes yearly workers’ contributions, which is the same problem faced by the Beardstown Ladies, the savvy group of older women who pooled their knowledge to invest their money. Their fantastical returns reported in their best selling book were audited when it was discovered they included their contributions as earnings.

When yearly contributions are subtracted, the increase is only 1 percent - hardly enough to be considered a recovery and certainly not enough to adequately prepare for retirement.


American workers' retirement plans are not working as hard for them as they should. If these funds had been contributed to a Guaranteed Retirement Account it would have created a more stable and significant source of retirement funding. The GRA shields workers' hard-earned savings from stock market crashes by pooling investments and guaranteeing a rate of return. GRA plans would provide 3 percent returns above inflation, plus the 5 percent of combined employee-employer annual contributions. This 8 percent increase over 4 years would mean an increase of 32 percent, including their own contributions.

A new SCEPA report, "Are Maryland Workers Ready for Retirement?" is raising awareness about the retirement crisis in Maryland. On March 31, 2013, The Baltimore Sun ran the article, "40% of Older Households in Maryland Ill-Prepared for Retirement, Study Finds" citing the report. SCEPA director Teresa Ghilarducci is quoted saying that the fact that Maryland is a relatively high-income state, "puts an exclamation mark on the end of the sentence that all of America has a coming retirement crisis." On April 5, 2013, Plan Sponsor ran "Nearly Half of Marylanders Not Plan Participants", citing the study. 

The report finds that four out of ten households headed by someone aged 55-64 in Maryland will receive the majority of their retirement income from Social Security or won't be able to afford retirement. The study also finds that more than 1 million workers in Maryland aged 25 to 64 do not participate in an employer-sponsored retirement plan. Many of these workers lack access to employer-sponsored retirement savings accounts due to a decrease in the number of jobs that offer traditional pensions or employer-sponsored plans. SCEPA has conducted similar research on New York City residents' preparedness for retirement and is currently conducting studies for Connecticut, Washington, and Illinois.

Today, my SCEPA research team joined me in releasing a study, "Are Maryland Workers Ready for Retirement," documenting a downward trend in both employer sponsorship of retirement plans and employee participation rates in Maryland from 1995 to 2012, making it increasingly difficult for workers to prepare for retirement.

Maryland retirement graph

In 2010, 49% of Maryland's workers – 1.25 million residents – were not participating in an employer-provided retirement plan. The lack of access has immediate implications for those nearing retirement: 41% of households headed by someone near retirement age (55-64 years old) will have to subsist almost entirely on Social Security income or will not be able to retire at all due to negligible savings.

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

1. A drop in employers' sponsorship of retirement plans for their workers. From 2000 to 2010, the availability of employer-sponsored retirement plans in Maryland declined by eight percentage points, from 67% to 59%.

2. A shift away from traditional pensions, which are mandatory, defined benefit pension (DB) plans, to 401(k)-type defined contribution (DC) plans. Only 36% of workers aged 25-44 have a DB plan as their primary employer-sponsored retirement plan, compared to 43% of workers aged 45-54 and 53% of those aged 55-64. Based on financial data from the U.S. Census Bureau, the report concludes that those with DB plans are more likely to maintain a middle class lifestyle throughout retirement, whereas those with only DC plans will need to consider selling their homes to obtain adequate retirement income.

3. A lack of participation in voluntary defined contribution plans. Of the 59% of workers who had access to a retirement plan at work, 14% did not participate, either due to personal choice or structural rules that exclude part-time workers, those with under a year of service, or those under 25.

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

AGE: Workers between 25 and 44 had the largest drop in sponsorship - 13% - among all age groups surveyed, suggesting this downward trend will continue as the population ages.

RACE: Hispanic workers lost the most ground with a 20% decline in sponsorship rates, more than double the decline of 9% experienced by White and Black Non-Hispanic workers.

INDUSTRY: Traditionally, large employers offer more benefits. However, firms with 500 to 999 employees showed the biggest proportional drop in sponsorship of 16%. They also had the largest absolute decline, dropping from 75% to 63%.

SCEPA recently testified at a hearing in the Maryland House of Delegates regarding legislation sponsored by Delegate Tom Hucker that would increase access to a retirement savings plans by giving workers the option of opening an individual Guaranteed Retirement Account (GRA) through the existing Maryland State Retirement and Pension System. A similar bill, sponsored by Senator Jim Rosapepe, would establish a Maryland Private Sector Employees Pension Plan.

The Guaranteed Retirement Account (GRA) is based on Ghilarducci's STATE GRA plan, which was recently enacted in California. The proposal takes advantage of existing financial infrastructure in the state to give private sector workers access to the best financial managers and the lowest fees. The accounts would be separate from public sector retirement funds and come at no cost to taxpayers—workers would pay administrative fees. Since these are individual retirement savings accounts, there is no liability to the state. Workers take out what they and their employer put in, plus the returns they earn. Private capital markets offer expensive retirement accounts with high fees to lower income workers because the sums invested are low. By pooling the money from many private sector workers, the Maryland State Retirement and Pension System can invest in longer-term opportunities with higher rates of return and charge lower fees.

Yesterday, I was on the radio show The Last Call hosted by Rob Lorei. We discussed Florida Speaker of the House Will Weatherford's proposal to end defined pension benefits for new state employees and replace them with 401(k)s. 

Thoughtful economist Gene Steuerle, institute fellow at the Urban Institute and a former deputy assistant secretary of the Treasury, reveals a basic truth in his recent article, "Getting the Facts Straight on Retirement Age." Namely, that the rich who live longer win, win, and win some more. But raising the retirement age needs to be viewed more broadly. Cutting benefits hurts ALL workers. In just one example, they are left having to beg for jobs at older ages, rather than having a livable social security benefit in their back pocket when negotiating.