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State Solutions:Universal Retirement Savings
CFED Assets Learning Conference
Phoenix, AZ
September 21, 2006
Marilyn P. Watkins
Economic Opportunity Institute
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Why Improve Retirement Security?
• Social Security is not enough
• Half of all workers aren’t in a retirement plan
• Retirement wealth is falling
• We’re living longer
• Workers change jobs more often
• States will bear the costs of seniors in poverty
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Social Security Provides a Solid Base
• progressive benefits
• guaranteed benefits
• family benefits
• annual cost-of-living adjustments
• lifetime retirement benefits
• low administrative costs
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Too many in or near poverty
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
white men whitewomen
blackwomen
Latina Asianwomen
150%
100%
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Sources of Income for Senior Households, 1996
80.7% 80.4%
65.8%
47.3%
20.6%
20.7%
23.8%
14.6%6.5%
2.6%2.7%
5.7%9.5% 14.8%
25.0%
6.6% 11.7%31.5%
11.4%
$0-8,156 $8,157-13,007 $13,008-20,000
$20,001-33,777
$33,778+
Quintiles of Income
Public Asst.
Earnings
Asset income
Pension
Social Security
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Life Expectancies at Age 65
Men:• can expect to live to 81• 17.5% will live past 90
Women:• can expect to live to 84• 31.4% will live past 90
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Who Lacks Workplace Retirement Plan ?
• Half of all workers
• Low income workers
• Part-time and temporary workers
• Small business employees
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Half of Workers Have No Plan
46.1% 47.4% 47.8% 51.6% 48.3%
0%
10%
20%
30%
40%
50%
60%
1987 1990 1995 2000 2004
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Families with Employed Member with Workplace
Retirement Plan
22.6%11.0% 12.0%
13.0%
13.1% 12.2%
21.5%33.2% 26.3%
0%
10%
20%
30%
40%
50%
60%
70%
1992 2001 2004
DC only
both
DB only
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Low Income Families are Least Likely to Have Plan
(income of families with employed member)
57.1%
50.5%
0%
10%
20%
30%
40%
50%
60%
70%
80%
<$10,000 $10,000-$24,999
$25,000-$49,999
$50,000-$99,999
$100,000+ Total
19922004
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Access and Participation Vary by Education
14.7%
37.1%
41.8%
55.9%
65.5%
0%
10%
20%
30%
40%
50%
60%
70%
non HS grad HS grad some college college grad grad degree
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Few Part-Time Workers Covered
48.3%
56.6%
25.7%
0%
10%
20%
30%
40%
50%
60%
all workers full-time part-time
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Plan Coverage Increases with Age, But Is Falling for All Age Groups(families by age of head of household)
0%
10%
20%
30%
40%
50%
60%
70%
<35 35-44 45-54 55-64
19922004
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Workers in Small Firms Least Likely to Have Access
12.3%23.9%
36.2%46.8%
51.2% 53.8%
72.9%
0%
20%
40%
60%
80%
1 to 9 10 to 24 25 to 99 100 to499
500 to999
1,000+ public
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Why Small Businesses Don’t Offer Plans
• administrative complexity
• cost
• difficulty comparing options
• lack of interest by employees
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Median IRA Values in 2004(for those with IRAs)
$30,000
$5,000
$16,000 $17,000
$24,000
$83,000
total <$10,000 $10-24,999 $25-49,999 $50-99,999 $100,000+
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Balance in All Individual Accounts(for those with any plan)
$111,043
$24,622
$75,479
$260,741
$25,000$2,000
$9,100 $22,000
$96,000
$41,353
Total $10-24,999 $25-49,999 $50-99,999 $100,000+
median
average
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Median Value of All DC Plans by Age(for those with plans)
$8,700
24,000
$47,200
$60,000
$0
$10,000
$20,000
$30,000
$40,000
$50,000
$60,000
<35 35-44 45-54 55-64
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State Solution: Voluntary Savings Accounts
• Defined contribution plan
• Tier – IRAs for individual workers
• Tier 2 – 401(k) or Simple IRA
• Pre-selected menu of investment options
• Administered by state
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Advantages of Retirement Accounts for workers
•Payroll deductions
•Portability between jobs
•Low costs – economies of scale
•Simplicity – pre-vetted options
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Advantages to Companies
• Easy administration
• Low cost
• Allows small firms to provide retirement plans
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What Small Business Owners Say:
2001 Focus Group Findings
• 17 out of 18 supported Voluntary Accounts• Payroll deduction would not be undue burden• Believe that providing a retirement plan very important
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Summer 2006 business interviews
• Business locations:• 11 in Seattle • 3 in North Seattle suburbs• 4 in Langley/Clinton - rural villages• 3 in Mt. Vernon - 70 miles north of Seattle• 3 in Aberdeen – an economically depressed
(former) timber community with a population of 17,000
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Interview Findings
• 15 out of 17 businesses with 1-10 employees (88%) supported WVAs.
• 6 businesses with 11 - 50 employees – all supported WVAs.
• 1 business with over 50 employees - supported WVAs.
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Recommendations by Small Businesses
• Provide diverse investment options
• Provide some sort of support for employers and employees, such as hotline or website
• Provide program promotion in the workplace
• Provide portability
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Additional Findings
• Only 5 businesses had retirement plans for employees (4 had 20 or more employees)
• Major reasons for not providing retirement plan: time, difficulties finding right plan, expense
• All believed that saving for retirement was important
• Many believed that Social Security is not enough• Larger businesses with retirement plan also saw
WVAs as advantageous.
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Necessary allies
• Public employee unions
• Small businesses
• State Executive Departments
• Investment firms
• Pension experts
• Senior groups
• Other states
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Couldn’t anyone open up an IRA?
• Any worker can, but few workers do. • Difficulty saving up lump sum payments• Investor fees • Overwhelming array of investment options
• VA’s will provide payroll deduction, low fees, and pre-screened investment options
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VAs will help the private investment industry
• States will contract with private companies
• Pool of investors will increase
• Over time, people will roll over VA accounts into accounts with private firms
How will Voluntary Retirement Savings Accounts affect the private investment industry?
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Contact Information
Marilyn Watkins
Economic Opportunity Institute
(206) 529-6370