Expanded Pensions Detailed
Every New Yorker Must Have the Right to a Pension
This is an urgent problem. With the Republican Congress rejecting the Perez ERISA exemptions for cities, thereby killing Mayor de Blasio’s plan, and with no clear commitment from Governor Cuomo, a this must be elevated to a constitutional right.
- An overwhelming majority of Americans believe there is a retirement crisis. Some 86 percent agree that the nation faces a retirement crisis, and 57 percent strongly agree there is a crisis.
- Over half of all private sector employees in New York – more than 3.5 million New Yorkers – lack access to a retirement savings plan at work such as a pension or 401(k).
- Only 43 percent of working people in New York City have access to a plan that can help them save for retirement. Those that do have access often face large fees, because they do not have the leverage provided by a collectively-pooled savings program.
- Even those who have started to save do not have much: 40 percent of people in New York City between the ages of 50 and 64 have less than $10,000 saved for retirement. The people in the rest of the state have similar numbers.
- By 2035, there could be more than 644,500 retired seniors in New York City living on less than $540 a week, rising to 709,000 by 2040. There will be hundreds of thousands more living in the same manner across the state.
- Mayor de Blasio announced a city-wide plan to provide a pooled pension for workers without access to one, but the U.S. House and Senate reversed Federal regulations that enabled it, killing an innovative plan.
The retirement crisis in New York State must be elevated to a constitutional issue. New York’s Constitution already features pension protections for state union members. We need to build on this base with a constitutional amendment guaranteeing access to a pension plan for every New Yorker.
The pension plan, like the plan for New York City that was recently killed by the Congress, should consist of a pooled pension that would automatically create individual retirement accounts for employees of businesses that do not already have a program. In addition, contractors who do not work for a business directly would also be entered into the program.
In this way, every working New Yorker would have access to a pension plan. In addition, the plan would move with the person as s/he changes jobs, rather than losing the pension or having to transfer it to another type of plan.
- The Senate has till mid-May to agree with the House and kill the exemption that Obama’s Labor Secretary Tom Perez announced that enabled states to have their own pension programs for workers who do not have access to one. The House and Senate have already killed the exemption for cities.
- “Without bold action on retirement security, more than half of working New Yorkers will be forced to retire on a food budget of $5 a day.” — Letitia James, Public Advocate
- About half of private sector workers in the United States—especially those who are low-income or employed by small firms—lack coverage from a workplace retirement savings program primarily because they do not have access.” — United States Government Accountability Office, “Retirement Security,” September 2015.
- “As for state efforts to set up retirement plans, 71 percent agree this is a good idea with three-fourths indicating they would consider participation.” — Diane Oakley and Kelly Kenneally, “Retirement Security 2015: Roadmap for Policy Makers,” March 2015.
- “Statewide in New York, one-fourth (26%) of 50+ voters in the labor force do not have any option to save for retirement through their employer. Another 22 percent have only defined contribution plans available, such as a 401k, where employers pay a specified amount into the plan but there is no assurance on the final payout to the retiree.” – AARP, “State of the 50+ in New York State,” September 2014.
- “Access to a secure retirement is an important social justice issue and, currently, too many New Yorkers do not have an affordable vehicle to put aside resources for the future.” — Congresswoman Nydia M. Velázquez
- “This retirement crisis is especially acute for women. Too often, it is women who struggle the most with financial hardship in retirement. In fact, among women age 65 and older, the poverty rate is nearly double that of men in the same age group.” – Senator Patty Murray, “Senator Murray Report on Women and the Retirement Age Gap,” January 26, 2015.
- Private sector workers are being asked to assume increasing responsibility for self-funding retirement. Yet, in New York City, approximately three out of every five private sector workers has no access to an employer-based retirement savings plan, which diminishes the likelihood of accumulating adequate retirement savings. – Scott Stringer, New York City Comptroller
Since the New Deal, many workers have assumed that they would get pensions from the company they worked for. From 1949 to 1975, the number of people who were covered by private pension plans went from 3.7 million to 40 million. More recently, however, the percentage of working people who have been receiving pensions from their place of employment has been trending down.
Nationally, nearly a third of working people have no retirement savings or pension:
Even more recent federal numbers show the participation rate of employee-sponsored retirement benefits was only 54 percent for civilian workers, 49 percent for private industry workers and 81 percent for state and local government workers:
In New York City, the numbers are even worse: “…only 41 percent of working New Yorkers having access today. This means that 1.8 million working New Yorkers do not have access to a retirement plan through their employer.”
Many might assume that private sector workers don’t have pension plans because they don’t want them. Research, however, contradicts this. According to the Government Accountability Office (GAO), the vast majority of private sector workers are not participating in retirement savings programs because they are not being offered:
According to the GAO:
Certain types of workers, such as those with lower incomes, are much less likely to have coverage compared to other workers. Lower-income workers, in particular, are much less likely to have access to workplace retirement programs and to choose to participate when programs are available. Compared to workers in the lowest income quartile, our analysis found workers in the highest income quartile were nearly 4 times as likely to work for an employer that offers a program, after controlling for other factors.
The New York State Constitution already includes very important guarantees for state pensions, so the concept of pension protections is already in the document. The lack of a viable Federal solution to the retirement crisis creates a need for the state to expand pension rights to non-state employees.
New York must follow the examples of Connecticut, California, Illinois and other states and tackle this problem. A pooled pension for all New Yorkers is a direct solution to this crisis in retirement security.
The pension would feature a centrally pooled retirement trust fund, open to all private-sector New York workers who currently have no access to a pension, and offering the investment, accumulation, and annuity advantages learned from well-managed public employee retirement systems in New York City and State. In addition, a pooled system for workers from many businesses would enjoy economies of scale not available to individual businesses administering 401(k) and other such plans.
Such a central pool would provide private employees with a public option pension plan, offer secure retirement savings with lower fees and higher returns than 401(k)s, and create a competitive advantage for businesses locating in New York.
The pension plan would automatically deduct a small portion of the worker’s income to the plan. Automaticity is important — a study conducted by the AARP shows that workers are 15 times more likely to save for their retirement if the money is automatically deducted from their paychecks.
Ultimately, a centrally pooled trust would allow for two more major advances in retirement savings and investment: – First, a New York workers’ trust would have a clear interest in re-investing the maximum possible amount of its fund into businesses and public projects in New York, allowing the collective retirement savings of New York workers to boost the New York regional economy. This can be done while still meeting all fiduciary responsibilities to the workers. –
Second, the economic gains brought on by the plan and the reduced need for public assistance for needy seniors should allow for a direct government contribution to the plans for low-income workers (along the lines of the Earned Income Tax Credit), thereby establishing a true Pension for ALL New Yorkers.
Recent History of Retirement Savings Plans For Workers Without Pensions in New York
In early 2016 Governor Cuomo announced the NY SMART Commission to “to study available options for the creation of a state-administered retirement savings program for workers whose employers do not offer a retirement plan.” The Commission held its first meeting September 30, 2016. Little has been heard from the Commission since, and the Governor has not mentioned it.
Meanwhile, AARP New York supports legislation called “Secure Choice” which would give employees the who don’t have workplace retirement plans the chance to open a Roth IRA at work and contribute their own money through an automatic payroll deduction. Although the bill has nearly 100 sponsors from both parties in both houses, there was no mention of support of the legislation by the governor, and no monies were assigned for it in the state budget.
In New York City, in early 2016 Mayor de Blasio proposed that New York be the first city in the country with its own pooled pension retirement plan for workers who lack access to an employer-sponsored one. This plan, however, was dependent on the Federal Department of Labor changing its rules to exempt cities from ERISA (The Employee Retirement Income Security Act of 1974).
ERISA sets standards for pension and health plans in private industry. Compliance with those standards can be expensive for states trying to create affordable retirement plans.
Near the end of the Obama Administration, Labor Secretary Tom Perez announced exemptions for cities and states. This would have enabled them to offer retirement plans without the additional costs ERISA would require.
However, by using an obscure 1996 law known as the Congressional Review Act, the House of Representatives voted against the exemptions for both cities and states. The Senate voted 50-49 to kill the exemption for cities.. Some weeks later, they voted the same 50-49 to end the exemption on state plans.
But numerous states have already started to implement plans and are expected to continue them even without the exemption. In addition, if the Trump Administration kills the fiduciary rule, it would eliminate the need for an ERISA exemption. As reported on CNN: “Oregon Treasurer Tobias Read has said that his state doesn’t necessarily need the exemption from ERISA to proceed, but that he viewed it as an advantage to have additional clarity on the rules.”
In fact, one financial expert, Chad Parks, CEO of Ubiquity Savings + Retirement, has said unless the states “completely panic and receive bad counsel, they should proceed with their plans as intended.”
A number of states have pension plans for their citizens.
Illinois has recently passed a new plan to provide pensions for a wide variety of its citizens. According to the Chicago Tribune:
The law requires all businesses in operation for at least two years and that have at least 25 employees to offer by June 1, 2017, its workers an individual retirement savings option.
Such companies without a work-based savings plan such as a pension or 401(k) can decide to work with private entities but they can also join the newly created Illinois Secure Choice Savings Program, which comes with a default 3 percent payroll deduction.
“This is a special … opportunity, for all of us to go forward at helping people save for retirement,” said Quinn, who in about a week will be replaced by Gov.-elect Bruce Rauner.
In Illinois, state officials said, 2.5 million private-sector employees do not have access to a work-sponsored retirement savings plan. Officials expect the vast majority of those offered plans under the new law will stick with it, though it allows them to opt out or lower their contribution amounts.
A match or employer contribution is not required, and no public dollars will be invested.
Currently, 7.5 million Californians work for employees who do not offer a retirement plan. On September 29, 2016, Governor Jerry Brown signed Senate Bill 1234 to establish the California Secure Choice Retirement Program.
This program, expected to be phased in starting in 2019, will require all employers within California with five or more employees who do not offer their employees another retirement savings plan to participate. Employees will be automatically enrolled in the program, but can opt-out.
According to the New York Times:
Under the plan, uncovered employees would have up to 5 percent of pay deducted from their paychecks, unless they opted out. Those contributions would be pooled and managed by investment professionals chosen by the state through a bidding process. The plan, called the California Secure Choice Retirement Program, would be overseen by a board of public- and private-sector leaders, appointed by the governor and the Legislature in 2012, when the legislative effort first got underway.
The benefits of such a plan are the lower fees and higher returns that come with pooled contributions and professional management. The burden on employers is minimal: They have to deduct the employees’ contributions from paychecks. The risks to the state are also minimal: Because the accounts are financed entirely with employee contributions, they do not present the fiscal problems associated with any public pension funds.
The Connecticut Retirement Security Exchange requires covered employers to automatically enroll their employees into a Roth-IRA arrangement. The act covers:
- Private employers with five or more employees who received at least $5000 in wages during the previous year
- Have been in business for at least one year, and
- Don’t offer a qualified retirement plan.
Companies with less than five employees may participate voluntarily.
Beginning January 1, 2017, the Connecticut Retirement Security Authority will have oversite of the retirement plan, which will begin in 2018.
The initial response to the program are positive. Nora Duncan, AARP Connecticut state director, said “We applaud Connecticut for creating a plan that provides 600,000 workers without a workplace retirement savings plan an opportunity to build a secure financial future for their families. The law adds no additional cost to taxpayers and will lead to less reliance on state-funded social safety net services in the future.”
Other liberal democracies are much more aggressive in supporting retirement savings programs. The following infographic is from the GAO:
The GAO report notes that California’s and Illinois’ programs are quite similar to the U.K.’s, in that the government created a board to provide a “reasonable option to meet the requirement to provide workers access.”
Our Existing Constitution
Article 5, Sec. 7
Membership in Retirement Systems; Benefits Not to Be Diminished nor Impaired
After July first, nineteen hundred forty, membership in any pension or retirement system of the state or of a civil division thereof shall be a contractual relationship, the benefits of which shall not be diminished or impaired. (New. Adopted by Constitutional Convention of 1938 and approved by vote of the people November 8, 1938.)
“AARP Connecticut Praises New Connecticut Retirement Security Program,” by Michael Humes, AARP, June 1, 2016.
“AARP: Governor, Lawmakers Ignore Critical Middle Class Issues in New State Budget,” by Erik Kriss, AARP NY, April 10, 2017.
“A Bold Vision for Retirement Security,” by Bill Samuels, EffectiveNY, 2014.
“Built to Lead: 2016 State of the State,” by Governor Andrew Cuomo, January 13, 2016.
“California Secure Choice: Making Workplace Retirement Savings Possible for Millions of Californians,” California State Treasurer John Chiang.
“Congress Reverses Rule on State Retirement Plans,” by Katie Lobosco, CNN, May 3, 2017.
“De Blasio’s City-Sponsored Retirement Savings Plan Still Needs Federal Approval,” by Laura Nahmias, Politico, February 25, 2016.
“Employee Benefits in the United States –March, 2016,” by the Bureau of Labor Statistics, July 22, 2016.
“From California, a Better Way to Retire,” by the Editorial Board, The New York Times, August 16, 2016.
“Mayor De Blasio Proposes Retirement Savings Plan for Private-Sector Workers,” by J. David Goodman, The New York Times, February 25, 2016.
“The New York City Nest Egg: A Plan for Addressing Retirement Security in New York City,” Scott Stringer, October 7, 2016.
“Policy Report: Saving New York City Through Retirement Savings,” by New York City Public Advocate Letitia James, June 2015.
“The Reality of the Retirement Crisis,” by Keith Miller, David Madland and Christian Weller, Center for American Progress, January 26, 2015.
“Retirement Security,” United States Government Accountability Office, September 2015.
“Retirement Security 2015: Roadmap for Policy Makers,” By Diane Oakley and Kelly Kenneally, National Institute on Retirement Security, March 2015.
“The Rise and Fall of Employer-Sponsored Pension Plans,” by Lisa Beyer, Workforce, January 24, 2012.
“Senate Repeals Labor Dept. Municipal Retirement Plan Rule,” by Sarah Lynch and Lisa Lambert, Reuters, March 30, 2017.
“Senator Murray Report on Women and the Retirement Age Gap,” by Senator Patty Murray, January 26, 2015.
“SMART Commission/New York City Retirement Security,” by Kate Herlihy, LICONY Hotline, October 14, 2016.
“State of the 50+ in New York State,” AARP, September 2014.
“State-Plans for Private Sector Likely to Charge Ahead,” by John Manganaro, Plansponsor, May 09, 2017.
“Quinn Signs Small-Business Retirement Plan Bill into Law” by Sally Ho, Chicago Tribune, January 4, 2015.
“State-Based Retirement Plans for the Private Sector,” Pension Rights Center.