2.8 Million New York City Residents to Get Retirement Coverage

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.

Who Is Finished Paying Their 2018 Social Security Taxes? Probably Not You.

This is a repost from Huffington Post.

Happy New Year - and happy new you! Time to take stock of your joints, your gut, and your wallet. The latter includes the biggest source of wealth most of us will ever have – Social Security. For a young family, the insurance value of Social Security is worth about $200,000. We pay for Social Security benefits by paying the FICA tax, which is 12.4% of earnings split evenly between the employer and the employee up to a 2018 cap of $128,400. Ninety-five percent of us will pay FICA all year long because our annual earnings fall below the cap.

However, it is because of this cap that the highest earners in America will stop paying the FICA tax before the end of the first week of January 2018. For example, the top-paid executive at Charter Communication (he makes $98 million a year and got a 500% raise last year) stopped paying by noon on January 1, right about when the ibuprofen kicked in to nurse New Year’s Eve hangovers. The CEO of CBS earned $68 million last year, a 22% raise from the year before, and will stop paying FICA tax by your first day back at work on January 2 (if you aren’t among the millions working on the New Year’s Day).

This game – ‘when do rich people stop paying for Social Security?’ – could go on forever. We can have fun with the calculations: who will finish paying by their first coffee break of the day? After brushing their teeth?

The earnings cap means that people earning the highest salaries (the top 1% is about 133,000 people earning an average of $2.5 million per year) pay into Social Security as if they only earn $128,400 per year. Their Social Security benefits are also calculated as if they make only that amount.

Every year, this cap means that over $2 trillion dollars of earnings escapes Social Security tax. This happens not by design, but by accident. According to Kathleen Romig of the Center for Budget and Policy Priorities, in 1983, Social Security reformers never imagined we would see such a rapid increase in earnings above the cap, nor did they imagine that the bottom 94% of earnings would experience wage stagnation during the 1990s and 2000s. According to the Economic Policy Institute, those earning the highest incomes would enjoy all the earnings gains of the last 40 years.

Of the many policy instruments available to help the middle and working class gain security by rewarding hard work, taxing earnings over the cap for Social Security is one way Congress can address the lopsided growth of income for the lucky few.

Social Security is in good shape and well funded. However, the program will only have enough money to pay ¾ of benefits in 2027 unless the system obtains about $300-$340 billion per year starting in 2028 or a cool trillion now, according to the nonpartisan Congressional Budget Office. To benchmark what $300 billion means, the President and Congressional Republicans passed an unpopular tax bill that cut federal revenue by over 4 times what Social Security needs – by 2028, 83% of the $1.5 trillion tax cut will go to the top 1% of taxpayers.  

Let’s review: Social Security needs $300 billion and $1.2 trillion of the benefits of the recent tax bill went to the top 1% of taxpayers.

Karen Smith at the nonpartisan Urban Institute argues that raising the earnings cap could ensure Social Security’s financial strength. Because raising the cap would mean only a few of the highest earners pay more, it is unlikely to inhibit overall economic activity. The richest people in America would not lose their social status or economic well being, though they and their employer will pay, on average, $300,000 more in Social Security taxes. They will still have the same power, influence, and goods and services. The biggest impact is that Social Security will be solvent.

We could also collect revenue for Social Security from income that is currently not counted as labor income. The richest 20 Americans – including four members of the Mars candy family members and three Waltons - likely earn at least 6% per year in dividends, interest, and capital gains on their wealth, or $45 billion. The lowest 21 million earners also earned $45 billion.

The top 20 richest people in the United States earned $22 billion per year each on inherited wealth and other non-labor sources of income. They did not pay any Social Security tax on that income. In contrast, the bottom 21 million earned $2,000 per year each on average and paid 6.4% of Social Security tax. However, if these billionaires paid Social Security tax on all their income, the Social Security system would instantly have 10% more revenue.

The Retirement Equity Lab at the New School for Social Research (where I am the director) has documented the retirement crisis in America. We need comprehensive pension reform, but private pension reform will not work unless we also shore up and expand Social Security. The first step is to right the wrong of lopsided earnings growth and raise the earnings cap. We should also tax some financial capital to strengthen and expand Social Security.

The vast majority of Americans of all ages, income levels, and political affiliations are opposed to Social Security benefit cuts in any form. Tax increases are the most popular way to fix Social Security among the American public. However, the tax increase will face significant opposition from the 5% or so of Americans whose incomes top that ceiling, as the tax hikes are much larger for the very highest earners.

A National Academy of Social Insurance survey reports that 77% of Americans feel it is critical to preserve Social Security benefits for future generations, even if it means raising taxes. Among respondents, 81% agreed that they don't mind paying taxes into Social Security "because it provides security and stability to millions." This includes majorities of every age group, income level, and political affiliation.

Solving the retirement crisis by shoring up pension income is the best policy idea for the new year. Eliminating the Social Security earnings cap is unlike the sugar and spending austerity resolutions you made: this policy is very little pain and all gain.

Rescuing Retirement: Talking Retirement Solutions in Washington, DC

nancy pelosi and rescuing retirementOn Tuesday, September 20, 2016, POLITICO's Ben White hosted co-authors Teresa Ghilarducci and Blackstone President Tony James for a "Cocktails and Conversation" event featuring their new book, Rescuing Retirement.

The event welcomed representatives from the media, government, industry, non-profits and advocacy groups as stakeholders in the need to solve the retirement crisis. Ghilarducci and James, left, shared their book and proposal for Guaranteed Retirement Accounts (GRAs) with House Minority Leader Nancy Pelosi.

Ghilarducci and James are working to lift up the efforts of 27 states working to provide a retirement plan for all Americans. The GRA would provide all workers with a safe place to earn higher rates of return than in a 401(k) and ensure workers a stable income for the rest of their lives. 

Rescuing Retirement: Book Launch Hosted by Michael Bloomberg

Book Draws Praise from Two Former Chairmen of White House Council on Economic Advisors

Screen Shot 2016 09 30 at 12.06.33 PMEconomist Teresa Ghilarducci, one of the nation’s leading experts on retirement security, and Blackstone President Hamilton “Tony” James today announced the publication of their co-authored book, Rescuing Retirement: A Plan to Guarantee Retirement Security for All Americans, at a reception hosted by Michael Bloomberg. The book outlines a deficit-neutral proposal to ensure that all workers can save enough to retire through mandated, individually-owned, and effectively-invested Guaranteed Retirement Accounts. Left unaddressed, the authors emphasize, the strain of a newly poor population of senior citizens would devastate federal, state, and local budgets for decades to come.

Key components of their visionary plan include:

  1. Universal coverage: Every American worker would have their own Guaranteed Retirement Account, ensuring consistent retirement savings throughout their career.
  2. Individually owned, effectively invested: Unlike Social Security, workers keep ownership of their assets through transparent individual accounts. As with traditional pension plans, their assets will be pooled and invested in long-term, strategies that generate higher returns than current 401(k) plans.
  3. Deficit-neutral and costless for families at or below median income: The plan redeploys current tax subsidies more evenly across the income distribution, and uses existing Federal payment infrastructure, avoiding a negative impact on the budget.
  4. Guaranteed lifetime income: Upon retiring, savings will be returned through life-long payments, guaranteeing a continuous standard of living as long as retirees live.
  5. Bipartisan appeal: This model keeps accounts under personal control, distributing savings based on the amount invested, not based on income, and without impacting the budget or raising taxes. 

The publication of the book coincides with the launch of a website dedicated to the plan and its promotion, rescuingretirement.org, and a social campaign driven by the hashtag #fixretirement on Twitter and Facebook. “This book should be required reading for everyone concerned with how Americans will fund their retirements and makes a compelling case that it should include us all. It is an important conversation starter in an area that will only get more relevant in the years to come,” said Austan Goolsbee, Former Chairman, White House Council of Economic Advisers.

“At a moment when America's retirees are caught in the middle of a political tug-of-war, James and Ghilarducci offer a new way forward. Rescuing Retirement proposes a provocative yet practical solution to America's pending retirement crisis,” said Alan Krueger, Professor of Economics, Princeton University and Former Chairman, White House Council of Economic Advisers.

“Our retirement system is broken – if we do not take action, America will face rates of poverty among senior citizens not seen since the Great Depression,” said Teresa Ghilarducci. “Our Retirement Savings Plan is a pragmatic solution that includes no new taxes, will not increase the deficit, and intelligently integrates into existing infrastructure to address this massive issue that cuts across all demographics.”

Said Hamilton “Tony” James, President and Chief Operating Officer of Blackstone: “If the country acts now, we can solve this problem, and solve it relatively painlessly for everyone. Our plan is a simple, sustainable, low-cost and politically viable proposal to enable workers to save and invest more effectively to secure their retirement.”

“Clear, thoughtful, and engaging. This book is a must-read for future retirees, policymakers, and anyone concerned with our nation's future,” said Christian Weller, Senior Fellow, Center for American Progress.

“We may have philosophical differences, but the plan put forth by Teresa and Tony provides a bold, refreshing approach to modernizing America's retirement infrastructure,” said Bill Jansien, CEO, StoneHedge Global Partners and member, Federal Retirement Thrift Investment Board.

The publication of this book follows the authors’ March 2016 white paper published by the Schwartz Center for Economic Policy Analysis (SCEPA) at the New School, “A Comprehensive Plan to Confront the Retirement Savings Crisis,” and their January 2016 New York Times op-ed, “A Smarter Plan to Make Retirement Savings Last,” in which they wrote, “Our plan would guarantee millions of Americans safe and secure retirements that would benefit them, their families, and the nation’s economy.”

Rescuing Retirement: Fixing Our Broken Retirement System

Teresa Ghilarducci, economist and director of The New School’s Retirement Equity Lab (ReLab), and Hamilton “Tony” James, president of Blackstone, have combined their academic and business expertise to advance a powerful reform idea—Guaranteed Retirement Accounts (GRAs). Outlined in their new book, Rescuing Retirement, GRAs are individual retirement accounts that would provide universal coverage, low fees, and professional investment management.