Looming over the nation’s workers and their families is the dread of not having enough money in retirement. This dread has been hastened by the calamity of the 2020 recession as those without retirement coverage at work lost one more year of savings and were left out of the stock market boom.
States have been addressing the problem while the federal government fails to act. And now, New York City is the second city (after Seattle) to help its private sector workers save for retirement. At the end of April, the New York City Council took a bold step and approved a city-sponsored retirement plan for private-sector employees who do not have retirement coverage at work, creating the city’s first ‘auto-IRA’ (individual retirement account). SCEPA’s Retirement Equity Lab, which testified in support of the policy, estimated the New York auto IRA plan will provide coverage to 2.8 million city workers that today have none.
Mayor de Blasio signed the bill into law last week. The city’s auto-IRA program will require employers with more than five employees to automatically deduct a percentage of their workers’ pay and forward it to city-facilitated, not-for-profit IRAs. Employers with less than five employees who want to participate can join voluntarily, as can the self employed and gig workers. A person’s auto IRA account will be individually owned and professionally managed, and administered by an independent board headed by city-appointed trustees. While employers are required to participate, employees would have the right to change their contribution rates or opt-out of the program. The plan is also portable; participants can maintain their accounts when they change jobs.
The Retirement Crisis in New York City
At The New School’s ReLab, we have been keeping statistics on how many New York workers don’t have workplace retirement plans. It is shocking that just 35 percent do. The retirement plan coverage rate has been falling to the point that we are at the lowest rate recorded for the city since the U.S. Census Bureau began tracking coverage in 1980. And the lack of coverage is worse for non-whites. Only 33 percent of Black workers, 27 percent of Asian, and 26 percent of Hispanic workers in New York City are covered. Not even the top income groups have 100% coverage, and just 25 percent of workers in the bottom half of the income distribution have a retirement plan.
Without action, by 2026, as many as 825,000 middle class workers in New York State (half of which live in the city) nearing retirement today could be at risk of poverty when they retire.
City and State Efforts Push Need for Federal Reform
Counting Ne York City’s new bill, there are now 15 enacted retirement savings programs (13 states and 2 cities) for private sector workers. The rapid-fire pace of reform efforts at the state and local level is a reflection of both the need for retirement coverage and the political will to act. Federal action is needed, but in the meantime New York City’s auto IRA plan (along with state and local efforts across the country) help workers save now.
The need and demand can be seen in New York State’s response to New York City’s bill. Both have now enacted auto-IRA plans for private sector workers, but the city’s version is stronger than the state’s, requiring employers to participate rather than making it voluntary. The state’s model is basically the system we have now, and it doesn’t work. (For a full discussion of the various models and an analysis of the policies’ strengths and weaknesses, please see SCEPA’s report, “State Retirement Reform: Lifting Up Best Practices”) In response to the city’s passage, a bill has already passed in the state assembly to bolster its law to include required participation by employers.
New York City’s stronger model is backed by evidence showing that states that mandate employer participation work best. Oregon’s auto-IRA has enrolled over 100,000 workers in just 2 years and saved $25 million. Only open since January of 2019, Illinois’ program has enrolled more than 24,000 workers, helping them save more than $5 million.
The New York City plan helps employers too. Small business owners beg their employees to save. Lide Sementilli, general manager at Total Care Pharmacy in the Bronx, was quoted by CBS news saying, “I tell my employees all the time, I say, ‘Look, you should try to save your money.” Now Sementilli’s five employees will get some help when the Mayor signs the City Council legislation mandating IRAs for small businesses like Sementilli’s. Small businesses want to do the right thing by their workers, but they have a hard time doing so if they are the only ones. The city requires all employers to join and saves small businesses from the paperwork and uncertainty of commercial 401(k) brokers, challenges documented by the Pew Charitable Trust.
These state and local policies reverse the slow retrenchment of U.S. policy to support workers through retirement coverage that Yale professor Jacob Hacker has warned us about. The New York City step is a step in the right direction until the Federal Government mandates all employers to provide a plan and the nation’s workforce and employers don’t have to wade through different state and city programs.