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Stemming the Retirement Crisis : WV Voluntary Employment Retirement Accounts

Stemming the Retirement Crisis : WV Voluntary Employment Retirement Accounts. Northern Regional Policy Workshop & Community Trainings Gaston Caperton Center, Fairmont State University - July 22, 2014. TED BOETTNER SEAN O’LEARY ANGELA VANCE. OVERVIEW. The Retirement Problem

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Stemming the Retirement Crisis : WV Voluntary Employment Retirement Accounts

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  1. Stemming the Retirement Crisis: WV Voluntary Employment Retirement Accounts Northern Regional Policy Workshop & Community Trainings Gaston Caperton Center, Fairmont State University - July 22, 2014 TED BOETTNER SEAN O’LEARY ANGELA VANCE

  2. OVERVIEW • The Retirement Problem • Retirement Income Deficit - $6.6 trillion • 38.3 million working-age households (45%) have no retirement account assets • 4 out of 5 working households have saved less than 1 year of income for retirement • The median retirement savings balance for households nearing retirement is only $12,000 • Leading causes of poverty among elderly • Lack of retirement assets a potential drain on future budgets

  3. Why aren’t workers saving for retirement? • Most workers lack access to workplace retirement plans. • Only 43% of WV’s private sector workforce is included in a workplace retirement plan Source: WVCBP analysis of 2011-2013 American Community Survey data (3-year average). Universe: private sector workers in West Virginia

  4. Low-wage workers are less likely to have workplace retirement plans Source: WVCBP analysis of 2011-2013 American Community Survey data (3-year average). Universe: private sector workers in West Virginia

  5. Small businesses are less likely to have workplace retirement plans Source: WVCBP analysis of 2011-2013 American Community Survey data (3-year average). Universe: private sector workers in West Virginia

  6. Young workers are less likely to have workplace retirement plans Source: WVCBP analysis of 2011-2013 American Community Survey data (3-year average). Universe: private sector workers in West Virginia

  7. West Virginia’s retirees rely heavily on social security Social Security makes up 44% of average senior income in WV, with an average monthly benefit of $1,300. Source: WVCBP analysis of 2011-2013 American Community Survey data (3-year average). Universe: population aged 65+ in West Virginia

  8. Roadblocks to retirement security • Access to a workplace plan is second only to having a job as the most important factor in building retirement security. • But with 350,000 workers in WV without a plan, the current system isn’t working.

  9. Roadblocks to retirement security • Small businesses are charged much higher administrative costs than large employers. • Administrative costs for employers with fewer than 50 participants average 0.43% of plan assets, compared to 0.22% for larger employers. • Small employers are also more likely to face higher investment fees.

  10. Roadblocks to retirement security • Small balance accounts are less profitable, and therefore less marketed and pursued by providers. • Tax incentives designed to encourage saving favor workers with higher incomes. • Consumers often face multiple, confusing options, making it difficult to make an informed decision

  11. Expanding access to retirement savings through VERA • A state sponsored system of Voluntary Retirement Accounts could make it easier for workers to save for retirement, and for businesses to offer benefits. • Legislation introduced in 2014 would have established a VERA program in West Virginia.

  12. Benefits of VERA • WV, through the Treasurer’s Office, would provide a selection of low-cost investment options. • The state would also serve as a resource in assisting in enrollment, contributions rules, and investment performance. • The state’s role in VERA would be similar to its current role in the Smart 529 program.

  13. Benefits of VERA • By pooling participants, the state can use its leverage to offer affordable, low-cost plans. • VERA can be run at no costs to the taxpayers, with start-up costs recouped from fees. • The state would also not be responsible for investment gains or losses.

  14. Conclusion • Thousands of West Virginia’s workers aren’t saving for retirement. • Most workers lack access to easy and affordable retirement plans. • VERA offers a practical way to meet an unfulfilled need in the market, ensuring that all workers in West Virginia have access to affordable retirement savings options.

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