NEW STUDY REVEALS DOWNWARD TREND IN MARYLAND RESIDENTS’ ABILITY TO RETIRE
41% OF WORKERS LACK EMPLOYER-SPONSORED RETIREMENT PLANS

TODAY: Maryland Senate Budget and Taxation Committee Votes on Legislation
Establishing the Maryland Private Sector Employees Pension Plan

Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis (Photo: Melisa Hom)

NEW YORK, April 2, 2013 - A study from The New School’s Schwartz Center for Economic Policy Analysis (SCEPA) documents a downward trend in both employer sponsorship of retirement plans and employee participation rates in Maryland from 1995 to 2012, making it increasingly difficult for workers to prepare for retirement.

In 2010, 49% of Maryland’s workers – 1.25 million residents – were not participating in an employer-provided retirement plan. The lack of access has immediate implications for those nearing retirement: 41% of households headed by someone near retirement age (55-64 years old) will have to subsist almost entirely on Social Security income or will not be able to retire at all due to negligible savings.

“The increase in the number of individuals without retirement accounts poses a danger to the broader economy, which will suffer the destabilizing effects of the mass downward mobility of seniors,” said Teresa Ghilarducci, New School economist and director of SCEPA,. “Now is the time for Maryland and other states to take a lead in providing an option for all workers to participate in a retirement savings plan at work.”

The Maryland Senate’s Budget and Taxation Committee will vote on legislation today sponsored by Senator Jim Rosapepe that would establish a Maryland Private Sector Employees Pension Plan.

SCEPA’s research attributes the downward trend in workers’ financial security in retirement to three factors:

1. A drop in employers’ sponsorship of retirement plans for their workers. From 2000 to 2010, the availability of employer-sponsored retirement plans in Maryland declined by eight percentage points, from 67% to 59%.

2. A shift away from traditional pensions, which are mandatory, defined benefit pension (DB) plans, to 401(k)-type defined contribution (DC) plans. Only 36% of workers aged 25-44 have a DB plan as their primary employer-sponsored retirement plan, compared to 43% of workers aged 45-54 and 53% of those aged 55-64.

Based on financial data from the U.S. Census Bureau, the report concludes that those with DB plans are more likely to maintain a middle class lifestyle throughout retirement, whereas those with only DC plans will need to consider selling their homes to obtain adequate retirement income.

3. A lack of participation in voluntary defined contribution plans. Of the 59% of workers who had access to a retirement plan at work, 14% did not participate, either due to personal choice or structural rules that exclude part-time workers, those with under a year of service, or those under 25.

The report broke down the trend by age, race, and industry:

• Workers between 25 and 44 had the largest drop in sponsorship - 13% - among all age groups surveyed, suggesting this downward trend will continue as the population ages.

• By race, Hispanic workers lost the most ground with a 20% decline in sponsorship rates, more than double the decline of 9% experienced by White and Black Non-Hispanic workers.

• Traditionally, large employers offer more benefits. However, firms with 500 to 999 employees showed the biggest proportional drop in sponsorship of 16%. They also had the largest absolute decline, dropping from 75% to 63%.

SCEPA recently testified at a hearing in the Maryland House of Delegates regarding legislation sponsored by Maryland Delegate Tom Hucker that would increase access to a retirement savings plans by giving workers the option of opening an individual, Guaranteed Retirement Account (GRA) through the existing Maryland State Retirement and Pension System.

The Guaranteed Retirement Account (GRA) is based on Ghilarducci’s STATE GRA plan, which was recently enacted in California. The proposal takes advantage of existing financial infrastructure in the state to give private sector workers access to the best financial managers and the lowest fees. The accounts would be separate from public sector retirement funds and come at no cost to taxpayers—workers would pay administrative fees. Since these are individual retirement savings accounts, there is no liability to the state. Workers take out what they and their employer put in, plus the returns they earn. Private capital markets offer expensive retirement accounts with high fees to lower income workers because the sums invested are low. By pooling the money from many private sector workers, the Maryland State Retirement and Pension System can invest in longer-term opportunities with higher rates of return and charge lower fees.

About the Schwartz Center for Economic Policy Research (SCEPA)
SCEPA is a leader in alternatives to mainstream economics. An economic policy think tank within The New School’s Department of Economics, our projects are designed to empower policy makers to create positive change. With a focus on collaboration and outreach, we provide scholars, non-profits and government officials with original, standards-based research on key policy issues. 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, liberal arts, public policy, management, the arts, and media, 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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