Some really good public affairs ideas are floating around out there in the public ether. New York City Mayor Bill de Blasio’s plan to finance an expansion of pre-K education is one of them. Another is the idea of guaranteed retirement accounts that supplement Social Security.
All of us are facing the issue of income security in old age. As fewer and fewer New York state workers have access to jobs with employer-sponsored retirement plans, it is high time for state leaders to take the initiative to create private retirement accounts for all state workers.
This is one real public policy idea that transcends issues of race, gender and economic class. It doesn’t add taxes and it shouldn’t increase actual government spending at all.
Why are we waiting? A good model for a state-sponsored retirement plan is out there, thanks to a study on retirement income security by the New School’s Bernard Schwartz Center for Economic Policy Analysis.
Not only has the middle class been burdened with increases in health care costs, but also with the rising cost of college education. Students and parents alike have been saddled with these escalating educational debts. Moreover, company-sponsored pension plans have been phased out by many businesses.
According to an article in The Week, four out of five private-sector workers in 1980 were covered by a company pension. Today just one in five private-sector workers have a company pension.
We could even liken the general situation to an intensifying brush fire around the foundations of the U.S. middle class. Keep the public distracted with weather news, celebrity news and sports entertainments, and few people, I suppose, will even really notice how little personal security they possess in 2014 compared to 1980.
State government, though, can do something against this lazy drift toward a diminished future for New Yorkers.
The crux of the retirement savings problem is that 401K plans have not been a good substitute for defined-benefit plans. The 401K plans have been a big boon mostly for Wall Street mutual fund managers, but not for the U.S. middle class. When 401Ks were created in 1978 as a way for corporate executives to supplement their corporate pensions, they were not intended to become the major retirement plan for the average American worker.
The 401K plans are not working for the simple reason that people are not saving enough money. This is by no means just a problem for individual New Yorkers. It threatens to become a far wider economic and social problem for everybody in the near future.
SLEEPWALKING TO FUTURE
Only about 33 percent of workers age 26 to 31 even have a personal retirement account. The National Institute on Retirement Security recently reported that 45 percent of all U.S. households have nothing at all saved for retirement. Nothing.
Among people age 50 to 64, 75 percent have saved less than $28,000. Meanwhile, the average yearly Social Security payment is only $15,000 for individuals and $22,000 for couples.
The point is that not all New Yorkers who don’t save for retirement are clueless about finance. Nor do they all lack self-discipline. Many people simply can’t save much in the face of education debt, health care costs, stagnant wages and credit card debt.
Let’s look to a country where a required pension contribution plan was started in 1992. Let’s look to Australia, whose government can hardly be accused of being overly intrusive. Today, Australia has one of the top-rated retirement systems in the world.
In addition to regular Social Security, average working Aussies enjoy the benefits of retiring at age 60 with private retirement balances averaging about $210,000 for men and $100,000 for women. This degree of financial security is achieved for Australian citizens by requiring employers to automatically deduct 3 percent from worker paychecks.
The deducted money is placed in a worker-owned private savings plan. At age 60, all withdrawals from the personal accounts are tax-free.
New York state could and should do something similar for all our workers.
Why wouldn’t smart politicians in New York state go along with this idea? The idea promises significant benefits for key constituencies in both political parties.
The idea for such worker-owned retirement plans is starting to pop up on the radar screens of politicians in the states of California, Connecticut, Maryland and our own New York state.
Some adviser should dare to whisper in Gov. Cuomo’s ear that a paltry half a percent lowering of the New York state business tax isn’t really the public policy ballgame in this election year 2014.
The real ballgame in New York state politics until Election Day 2014: (1) the De Blasio plan to finance pre-K education because this issue involves income inequality, (2) graceful retreat from the problems of Core Curriculum reform, (3) public advocacy for guaranteed worker retirement accounts.
It is the right time for some ambitious and farsighted New York state politicians to get together to seize the public initiative on this last important issue. Starting required retirement accounts is a good public policy. Everyone can benefit without additional expense for strained public budgets.
If it is done right, worker retirement accounts could also create a new pool of money available for essential New York state public investments.
L.D. Davison lives in Amsterdam and is a regular contribtor to the Sunday Opinion section.