NEW school study: 48% OF NEW YORK WORKERS LACK EMPLOYER-SPONSORED RETIREMENT PLANS

New School Labor Economist, Retirement Expert Teresa Ghilarducci Proposes Plan to Provide Private-Sector Workers Access to Existing State Pensions

New School Labor Economist and SCEPA Director, Teresa Ghilarducci (Photo: Jerry Speier)

SCEPA research finds that in 2009, 48% of New York’s workers did not have access to an employer-provided retirement plan, which is 7.2% more than the previous decade. Further, in a previous study with New York City Comptroller John Liu, SCEPA found that one-third of New Yorkers cannot afford retirement.

"The increase in the number of individuals without retirement accounts poses a danger to the broader economy, which will suffer the destabilizing effects of mass retirement insecurity," said Ghilarducci. "Opening existing, well-managed retirement systems to private-sector employees presents a fair and low-cost solution to this looming crisis."

Ghilarducci proposes giving workers from the private sector voluntary access to state-managed pension funds. Private-sector workers or employers would have the ability to open an account in a state-level public retirement fund such as the New York State Common Retirement Fund. Workers and/or employers can then choose to contribute a percentage of pay into an account with a guaranteed rate of return. At retirement, workers would have the option to convert their savings into an annuity, a guaranteed stream of income for life.

"Effective retirement reform is not how to scale back options for certain employees, but how to increase access to safe, effective retirement plans for everyone," said Ghilarducci, whose op-ed "Our Ridiculous Approach to Retirement" was recently the New York Times' most-emailed article. "Without comprehensive reform, our future retirees face a real threat of downward mobility in their 'golden' years. Private-sector workers have been, and will continue to be, battered by the double jeopardy of increasing market risk in their 401(k)s and decreasing employer coverage. Opening a window for private sector workers in high performing public pension funds provides a practical blueprint to stave off an impending retirement crisis."

The proposal takes advantage of existing state pension infrastructure to invest private-sector funds. States, through their employee pension plans, sponsor not-for-profit financial institutions that consistently receive the highest returns for the least cost. Because they pool longevity risk, can offer a well-diversified portfolio over time, and are professionally managed, DB plans can deliver the same level of benefits as DC plans at a cost that is 43% less. These funds are able to use their bargaining power to lower fees, and public pension fund traders have a longer-term view, which stabilizes markets and protects individuals from short-term swings in asset prices.

Ghilarducci's proposal calls for an independent board of trustees to administer these funds, similar to the structure of TIAA-CREF, the pension plan for university professors, or the Thrift Savings Plan for federal employees. Pension contributions would be pooled and invested professionally with an emphasis on prudent and low-risk, long-term gains. This would effectively shield workers from the high fees and poor investment choices they face when left to fend for themselves in the retail 401k market. Most importantly, these accounts would be portable, allowing a worker to continue investing in the account as they move from job to job.

The California State Senate recently passed a plan based on Ghilarducci's proposal, titled, The California Retirement Savings Act. The plan was praised by California State Treasurer Bill Lockyear as "a meaningful retirement security option for California private-sector workers."

ABOUT THE SCHWARTZ CENTER FOR ECONOMIC POLICY ANALYSIS (SCEPA)
SCEPA is an economic think tank located within the Economics Department at The New School for Social Research. The Center works to focus the public economics debate on the role government can and should play in the real productive economy - that of business, management, and labor - to raise living standards, create economic security, and attain full employment. With a focus on collaboration and outreach, SCEPA provides original, standards-based research to engage the public, opinion leaders and elected officials in the discussion of how to create a more stable, equitable, and prosperous economy. For more information, visit www.economicpolicyresearch.org.

ABOUT THE NEW SCHOOL
The New School, a leading progressive university in New York City, was founded in 1919 as a center of intellectual and artistic freedom. Today The New School is still in the vanguard of innovation and experimentation in higher education, with more than 10,000 undergraduate and graduate students in design and the social sciences, the humanities, management, and the performing arts and thousands of adult learners in continuing education courses. Committed to public engagement, The New School welcomes thousands of New Yorkers yearly to its celebrated public programs and maintains a global presence through its online learning programs, research institutes, and international partnerships. Learn more at www.newschool.edu.

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