States should step in to offer retirement options

Article Yvonne R. Walker

Barbara Williams is a former aerospace worker in California who lost her piece of the American dream when that industry downsized. She lost her job, benefits and hope for a dignified retirement.

Now, at age 66, Barbara works as an early childhood education provider — an occupation that provides more emotional gratification than wages and benefits. Without access to an employer-sponsored retirement plan, Barbara and more than 6 million other Californians will face the choice of retiring into poverty or working until death.

Stories like Barbara’s are often left out of the discussion when we talk about solutions to America’s looming retirement crisis, particularly state-based retirement plans. That’s why I feel that it’s necessary to respond to Pensions & Investments’ recent editorial (“States reaching out too far,” June 9) which makes arguments against publicly administered retirement savings plans for private-sector workers.

Not only is Barbara’s story relevant, but also it’s a driving force behind the 2012 passage of the California Secure Choice Retirement Savings Plan Act and similar proposals. The tax-based solution proposed in the editorial does not remotely address the underlying problem of retirement insecurity, and would do nothing to fix the system that has failed millions of workers like Barbara.

Due to the erosion of traditional pension plans in the private sector, stagnant wages and rising personal debt, the median retirement account balance is $3,000 for all working-age households and $12,000 for households near retirement age, whether they have access to a retirement plan or not, according to a study last year by the National Institute on Retirement Security.

The ticking time bomb of insufficient private-sector retirement savings is a real problem that will haunt state and federal governments for decades if we do not take measures to help current workers save enough money so they are not mired in poverty during old age.

The editorial states: “Before enacting public-private plans, states as well as the federal government ought to remove governmental impediments to enterprise growth, such as taxes and regulations, to encourage more business and job expansion.”

Where is the evidence that cutting taxes encourages employers to increase retirement benefits for employees? Employers already receive a tax benefit for contributing matching funds to 401(k) plans as well as for contributions to traditional pension plans. Evidence shows that fewer and fewer employers are taking advantage of these existing tax benefits to match employee contributions or contribute to defined benefit plans.

According to a 2012 University of California, Berkeley, study, only 45% of private-sector employees (ages 25 to 64) in California work for an employer that sponsored a retirement plan and only 37% actually participate in the plan.

With benefits being little more than $17,000 per year for men and about $13,000 per year for women, Social Security alone clearly is not going to close the retirement gap for these millions of workers. That’s why California lawmakers took the bold step of adopting the Secure Choice bill, which starts with a feasibility study before any implementation. Our Secure Choice plan would offer low- to middle-income workers something they desperately need: a safe, affordable way to save for retirement through payroll deduction.

While there are many retirement products in the market, the high percentage of workers — especially low- and middle-income earners — who have no retirement account and the inadequate median balances of those who do speaks to the failure of the market to provide for the retirement needs of far too many Americans. Billions spent by the government on retirement tax incentives and by the financial service industry on marketing have failed to convince most small businesses or tens of millions of low- and middle-income workers to establish voluntary retirement plans.

California’s Secure Choice program plans to auto enroll workers (who will always have the ability to opt out) whose jobs do not offer a retirement plan into an individual retirement account that will provide them with modest income to supplement Social Security. IRAs are not subject to ERISA; contrary to the editorial’s assertion, neither California nor any other state of which I am aware is calling on Congress to ease ERISA. We believe Secure Choice and California’s consumer protection laws will provide strong safeguards to participants against any potential misfeasance by participating employers or financial service firms that provide services to the plan.

Unlike 401(k)-style defined contribution plans, Secure Choice accounts will be pooled and professionally managed so workers aren’t left acting as their own actuary, risk manager and investment professional. California already has experience in administering a plan — CalPERS — for millions of current and retired public employees. We hope to adapt some of the best practices of the California Public Employees’ Retirement System to help millions of private-sector workers enjoy some modest retirement security.

While the editorial board of P&I and I agree that we must address retirement insecurity, retirement advocates know that cutting taxes isn’t going to make this problem magically go away. Also, given the partisan gridlock in Washington, it would be foolhardy to wait for Congress to solve this problem. That’s why more than a dozen other states have joined California in seeking innovative solutions to this national problem. We are not saying we have all the answers — we’re still early in the process of creating this plan — but at least we are committed to finding a solution for workers like Barbara Williams so they’re not left with a no-win situation of working until they die or retiring in poverty. 

Yvonne R. Walker is president of Service Employees International Union, Local 1000, Sacramento, Calif., and serves as a member of the California Secure Choice Retirement Savings Investment Board.

Editor’s note: A version of this opinion piece was first published on the Pensions & Investments online magazine on July 7. It responds an editorial from June 9.