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State Solutions: Universal Retirement Savings

State Solutions: Universal Retirement Savings. CFED Assets Learning Conference Phoenix, AZ September 21, 2006 Marilyn P. Watkins Economic Opportunity Institute. Why Improve Retirement Security?. Social Security is not enough Half of all workers aren’t in a retirement plan

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State Solutions: Universal Retirement Savings

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  1. State Solutions: Universal Retirement Savings CFED Assets Learning Conference Phoenix, AZ September 21, 2006 Marilyn P. Watkins Economic Opportunity Institute www.eoionline.org

  2. 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 www.eoionline.org

  3. Social Security Provides a Solid Base • progressive benefits • guaranteed benefits • family benefits • annual cost-of-living adjustments • lifetime retirement benefits • low administrative costs www.eoionline.org

  4. Too many in or near poverty www.eoionline.org

  5. Sources of Income for Senior Households, 1996 www.eoionline.org

  6. 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 www.eoionline.org

  7. Who Lacks Workplace Retirement Plan ? • Half of all workers • Low income workers • Part-time and temporary workers • Small business employees www.eoionline.org

  8. Half of Workers Have No Plan www.eoionline.org

  9. Families with Employed Member with Workplace Retirement Plan www.eoionline.org

  10. Low Income Families are Least Likely to Have Plan(income of families with employed member) www.eoionline.org

  11. Access and Participation Vary by Education www.eoionline.org

  12. Few Part-Time Workers Covered www.eoionline.org

  13. Plan Coverage Increases with Age, But Is Falling for All Age Groups(families by age of head of household) www.eoionline.org

  14. Workers in Small Firms Least Likely to Have Access www.eoionline.org

  15. Why Small Businesses Don’t Offer Plans • administrative complexity • cost • difficulty comparing options • lack of interest by employees www.eoionline.org

  16. Median IRA Values in 2004(for those with IRAs) www.eoionline.org

  17. Balance in All Individual Accounts(for those with any plan) www.eoionline.org

  18. Median Value of All DC Plans by Age(for those with plans) www.eoionline.org

  19. 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 www.eoionline.org

  20. Advantages of Retirement Accounts for workers • Payroll deductions • Portability between jobs • Low costs – economies of scale • Simplicity – pre-vetted options www.eoionline.org

  21. Advantages to Companies • Easy administration • Low cost • Allows small firms to provide • retirement plans www.eoionline.org

  22. 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 www.eoionline.org

  23. 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 www.eoionline.org

  24. 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. www.eoionline.org

  25. 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 www.eoionline.org

  26. 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. www.eoionline.org

  27. Necessary allies • Public employee unions • Small businesses • State Executive Departments • Investment firms • Pension experts • Senior groups • Other states www.eoionline.org

  28. 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 www.eoionline.org

  29. How will Voluntary Retirement Savings Accounts affect the private investment industry? • 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 www.eoionline.org

  30. Contact Information Marilyn Watkins Economic Opportunity Institute marilyn@eoionline.org (206) 529-6370 www.eoionline.org

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