SCEPA's Retirement Equity Lab at The New School published my paper with co-author Adam Hayes titled, "401(k) Tax Policy Creates Inequality." Though well-intentioned, the current system of tax deferral for retirement contributions undermines public policy aimed at strengthening retirement security for all Americans. In fact, it has become a regressive policy that contributes to wealth inequality.

Ghilarducci Hayes PN 2015-1 graph 1

This policy notes illustrates how two employees who are identical savers and investors in every way except for income receive different rates of return due only to the effects of the tax code. Converting the current system of tax deductions for defined contribution retirement plans to a refundable tax credit would solve this problem and treat all retirement savers the same.

I am proud and honored to be named to a group organized by New York City Comptroller Scott Stringer to study how to provide retirement security to New York City residents who lack retirement plans at work. The Comptroller announced his intentions to create the panel at SCEPA's 2014 conference, "Confronting New York City's Retirement Crisis," co-sponsored by the New York City Central Labor Council, AFL-CIO.

SCEPA's report, "Retirement Readiness in New York City," identified that employer sponsorship of retirement plans is falling. Between 2001 and 2011, the percentage of workers in the New York region with any type of retirement plan – either a traditional pension plan or a more widespread 401(k) plan – decreased from 49% to a mere 41%.

Nevada testimony picOn March 3, 2015, I spoke before the Government Affairs Committee of the Nevada State Assembly on AB 190. This legislation seeks to cut the state's healthy public pension system by decreasing its defined benefit (DB) program and introducing a defined contribution (DC) plan for future workers. 

In my testimony, I focus on failed experiments with the same formula in other states, including Alaska, Michigan and West Virginia. In each case, the changes increased the state’s pension debt beyond what it would have been if their DBs plan had been kept intact. 

The Las Vegas Review-Journal covered the hearing in their article, "Bill to Change Nevada PERS Sparks Debate in Assembly Panel."

On NPR's On Point with Tom Ashbrooke on February 25th, I referred to a list of questions that each investor should ask his or her financial advisory, aka "your guy." These will help ensure your savings are invested to benefit you, rather than the advisor or their company. Here they are. Please, please use them. 

Six Critical Questions to Ask Your “Guy”: 

1. How are you paid? Fee-only advisers receive no compensation from the sale of investment products. All others do. You can’t count on an adviser who gets a significant portion of their pay in sales commissions. Period. Leave if they are not fee-only.

2. Do you have any conflicts of interest that influence the advice you provide? Financial advisers who are registered representatives get paid to sell insurance or annuity products promoted by their brokers. Ask how they choose the investments they recommend. Ask them directly how they are paid.

3. Will my assets be housed with an independent custodian -- that is, a bank that is not selling the investment products? “Yes” is the only acceptable answer here. Bernie Madoff’s firm did not use one. Enough said.

4. Are your clients similar to me? If your fee-only adviser’s typical client has a net worth of $1 million or more, and you aren’t rich, think twice.

5. What services do you provide? If the adviser’s primary service is investment advice, and you are looking for someone to construct a complete financial plan for you, this adviser is unlikely to be a good match.

6. Do you act in a fiduciary capacity towards your clients? Leave fast if they don’t say yes. You are asking the broker if he or she is obligated to put your interest first, before that of his or her firm. If there is any other answer but a clear yes, grab your wallet tight and leave.

NPR on point logoI was proud to join Tom Ashbrook on NPR's On Point on February 25, 2015, to discuss President Obama's recent announcement at AARP that the Department of Labor would move forward with a fiduciary rule requiring brokers to put their clients' retirement savings before their own profits.

The rule is expected to protect future retirees from excessive and hidden fees. In May 2012, Demos, a nonprofit advocacy group and SCEPA partner on retirement security, published the report "The Retirement Savings Drain: Hidden and Excessive Costs of 401(k)s." Written by Policy Analyst and New School PhD student Robbie Hiltonsmith, it 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.

Institutional Investor"States Move to Implement Retirement Accounts," a February 4, 2015, article by Joel Kranc of Institutional Investor, summarizes the movement of retirement reform from the federal level to the state level. "But whereas the federal level is talking, the states are taking action on their own plans," says Kranc. He cites Illinois and California as the early leaders in the effort, both having passed legislation. He summarizes, "Some of the states taking a look at these types of plans are Connecticut, Vermont and Minnesota, which have passed legislation that creates frameworks for a plan. Maryland and Oregon have started taskforces, and 15 others are considering their options as well."

Kranc takes it one step further, interviewing experts to assess the quality and content of plans under consideration. 'Illinois is the first and boldest among 37 states that have something in the works,' notes Teresa Ghilarducci, a labor economist at the New School for Social Research in New York. 'But Illinois has passed the most simple, least regulated and therefore least helpful plan. Other states are looking at ways to create exchanges or a public option that creates a low-cost option. This is certainly a state-by-state movement for add-on plans,' she says."

In 1950, the United States could claim racial equity in one important respect - both black and white American men who reached age 65 could expect to live twelve more years to age 77.

By 2010, white men at age 65 were projected to live almost 2 years longer than black men, while white women could expect to live one year longer than black women.

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Given that gaps in life expectancy at age 65 exist between black and white Americans, the fact that the "average" American is living longer cannot be used to justify proposals to raise the retirement age. In fact, the data reveal that such a proposal will disproportionately impact Blacks.

Read SCEPA's full report investigating the racial disparities behind proposals to raise the retirement age.