When FDR embraced the idea of Social Security in the 1930s it was supposed to be one post on a strong “three-legged stool” to assure a comfortable and dignified retirement for senior citizens.
The other legs on the stool were personal savings accounts and workplace pensions. Social Security was merely the safety leg (with both employer and employee mandated to give a small percentage each month that would grow slowly over time).
But personal savings of any consequence went the way of the dinosaurs as interest shrunk, families spent heavily on living expenses and many took ever-bigger mortgages in the belief that home values would more than compensate.
As Department of Labor Secretary Tom Perez notes, “The days of Ozzie and Harriet (the 1950s) are long gone.” The frightening decline in unionized workplaces – important since unions fought for retirement benefits – means workplace pension plans are eroding even faster than savings accounts.
Today, DOL statistics confirm, less than a third of those aged 65-74 have any savings at all in a retirement account – and even those who do carry a median balance of $49,000. That three-legged stool has tipped over and landed millions of workers on their butts, making Social Security the only mainstay for tens of millions, a task for which it was never intended. It may also partly explain the anger and bitterness of private sector workers toward government union employees who still are pension protected.
This is not a new issue. Every Obama federal budget request has called for voluntary Investment Retirement Accounts (IRAs) for every private-sector worker. But Congress has refused to respond. Meanwhile the pressures on SS grow and plans like the Treasury Department’s myRA (no fee, no risk but no big gains) weren’t cutting it.
“We’ve got to make it easier for people to save for retirement,” President Obama told the White House Council on Aging last summer as he directed Perez’s department to come up with a new method, without Congress.
On August 25 Perez and the National Economic Council finalized guidelines for states and even large cities to set up their own retirement savings plans for private sector workers, with a path forward consistent with federal law. It answers objections or fear of lawsuits that have caused several states to hold back.
But some have gone full speed ahead. Frustrated with Congress’ failure to act, eight states – California, Connecticut, Illinois, Maryland, New Jersey, Oregon, Massachusetts, and Washington – have already created their own retirement savings plans available to all their private sector workers. Perez expects the new rules to open the door for more to be comfortable with the idea, since it protects states and large cities from potential conflict with ERISA (the Employee Retirement Income Security Act), an overriding federal framework for already established workplace employee benefit plans, which are rapidly diminishing.
The DOL secretary is pushing the concept for states that balked about the danger of being pre-empted by ERISA. The new path avoids that. It is voluntary. All workers are automatically enrolled if their company doesn’t have its own pension plan and can opt out readily. The employer makes no contribution but simply allows payroll deductions and the like.
Automatic enrollment, with easy opt-out, is essential, says Perez, since studies find a 1 to 13 improvement in participation. It’s also long overdue, he noted. He considers the criticism from the right “laughable-we have tens of millions who don’t have access to retirement services now. The consequence of doing nothing is enormous cost to the government-we will have more people relying on public assistance to survive. I wish the Republicans would listen to their constituents.”
Jeff Zeints, director of the National Economic Council in the press conference unveiling the details, notes “The regulatory landscape needs to catch up with the actual landscape.”
The workplace retirement pillar must be improved, said Perez. “Social Security was never meant to be the sole source of income and is threatening to become that. We’re trying to help senior citizens in the face of consistent Republican opposition.”
Photo: AP
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