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.

The New York Times today unveiled a thoughtful series on the deficit, Debt Reckoning: The Fiscal Deadline in Washington. In "Study Questions Tax Breaks' Effect on Retirement Savings," economic policy reporter Annie Lowrey identifies the lopsided and ineffective tax breaks for retirement accounts as a major contributor:

"Every year, the federal government spends more than $110 billion on tax deductions to encourage Americans to save more for retirement. A new study suggests such provisions may have little effect on the amount Americans save." That's because they go to people who least need the help!

We agree that these tax breaks are ineffective in raising retirement savings and benefit the highest earning tax payers (read SCEPA's analysis of retirement tax expenditures). But instead of eliminating them, we should rearrange retirement tax deductions into a tax credit. This would allow every American to set aside money in a retirement account of his/her own. If we cut the retirement tax expenditure and merely use it to reduce the government debt, we will still face an overwhelming retirement income debt that will result in a retirement crisis (the gap between what Americans need for an adequate retirement and what they have is close to $6 trillion, according to Anthony Webb at Boston College's retirement Research Center).

America's debt crisis has forced Congress to re-evaluate and possibly reform the tax code. They should use this opportunity to restructure the tax code to solve the upcoming retirement crisis.

For further investigation into this topic, below is video of a forward-thinking event hosted by SCEPA and the New America Foundation in 2009 that asked academics and lobbyists to defend and critique three major tax breaks – those for retirement, housing and employee health care. You can also read Lauren Schmitz's analysis of the costs of these tax expenditures at the state level.

Raising the eligibility age for Social Security and Medicare is based on the assumption that elderly Americans can and should work more. In a new Policy Note by SCEPA Research Assistant Anthony Bonen, "Older Workers and Employers' Demands," he presents new evidence that rejects the assumption that elderly Americans are physically and mentally able to work for pay later into life and that, by extension, employers will find older people to be desirable employees. Bonen find that older workers' physical and mental job requirements have increased between 1992 and 2008. These findings align with Neumark and Song's (2012) conclusions that older workers are facing more age discrimination. Together, these findings suggest that raising the retirement age – essentially is a cut in benefits – would hurt most older American workers.

This Policy Note describes older workers' self-reported job descriptions in 1992, 2002 and 2008. Data comes from the University of Michigan's Health and Retirement Survey (HRS), which conducts panel surveys biennially with over 5,000 respondents over the age of 50. We find that:

a) the downward trend in the physicality of job demands, observed in 1990s, is trending back up, and;

b) the downward trend in the physical demands of jobs held by the elderly was never apparent for the oldest working cohort, ages 62 to 65, who are eligible for early Social Security retirement.

These findings suggest different policy implications than what Johnson asserts. In particular, attempting to force older Americans to work longer by increasing Social Security and Medicare eligibility ages will have deleterious physical and/or mental impacts on many elderly workers, particular those with more demanding, often lower paying, jobs.

The New York Times ran a letter to the editor by Bonen echoing the report's findings from the perspective of a millennial.


PBS Newshour's Business Desk blog asked me to comment on the impact of raising the retirement age. Despite conventional rhetoric, the physical and mental demands of older workers' jobs have intensified, making raising the retirement age poor economic policy.

As a recent SCEPA policy note documents, job quality for older Americans from 1992-2008 has declined due to an increase in jobs that require physical demands or traits, such as good eye sight. The increase in physically-demanding jobs is associated with service sector jobs, a decline in bargaining power, and increased unemployment among older Americans. There is no way to distinguish between older workers who are unfit for working longer than those whose jobs can be performed well into a worker's late 60s or 70s. For these reasons, raising the retirement age or the medicare eligibility age would harm vulnerable older Americans in low-paying and difficult jobs.

Rick McGahey – The Politics of the Debt Limit Debate
Professor of Professional Practice in Public Policy and Economics, Urban Policy 
Milano School of International Affairs, Management, and Urban Policy

Teresa Ghilarducci – Social Security and Medicare Are Not the Problem
Director, Schwartz Center for Economic Policy Analysis (SCEPA) Department Chair and Professor of Economics and Policy 
The New School for Social Research

Darrick Hamilton – Obama's Challenge: Addressing Inequality and Asset Building
Associate Professor, Urban Policy 
Milano School of International Affairs, Management, and Urban Policy

David Plotke – The Past and Future of Political Polarization
Professor of Political Science
The New School for Social Research

I discussed the history of retirement security in the U.S. and the current status of 401K-based retirement with Tom Ashbrook on NPR's On Point, "Is the 401(k) Working?" I described the fundamental flaw in the current system, "You're on your own." The possibilities for government, especially state and local, to help provide additional retirement funding for its citizens, is a major area of focus for new SCEPA research, through measures such as state-level Guaranteed Retirement Accounts (GRAs).

In two recent articles, the Governing Institute cites my work about the looming pension crisis for workers in the U.S. On June 14, 201 in the article "America's Looming Pension Shock," Governing's Director Mark Funkhouser discusses the effects of decreasing public pensions for workers as they reach retirement. He writes, "but Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School in New York City and author of "When I'm Sixty-Four: the Plot against Pensions and the Plan to Save Them," would tell these government leaders that cuts in government workers' pension benefits are contributing to another impending crisis that they should begin to think about." He continues by bringing attention to my  Guaranteed Retirement Accounts plan as a potential solution.

On June 28, 2012 in "The Very Public Private-Sector Retirement Problem," Governing's Penelope Lemov continues the discussion by writing about the inadequacy of 401(k) plans in providing a secure retirement income in the face of pension shortfalls and potential state-level solutions to address the crisis. She draws attention to recent legislation in California introduced by Senator de Leon that would allow workers without work-based retirement accounts, like a traditional defined benefit pension or a defined contribution 401(k), to automatically be included in a state-run plan. The plan has already been approved by the California State Senate, and if it passes through the State Assembly, I predict that a handful of states will follow suit quickly. New York, Massachusetts and Connecticut are already considering similar plans.