Along with defending Social Security nationally, and our state Employee Retirement System, Wisconsin should design and implement a state-sponsored retirement plan for private-sector employees as a simple way to improve their retirement security.
What’s the Problem Addressed?
Many Americans are not saving enough for retirement (if they are saving at all), and are likely to fall behind their standard of living in retirement. According to recent studies, 80% of US households have saved less than one times their annual income, and only 55% of private-sector employees have access to workplace retirement benefits.[note] Slade, F. (June 22, 2017). The retirement savings deficit in America. BenefitsPRO. http://www.benefitspro.com/2017/06/22/the-retirement-savings-deficit-in-america[/note] According to a poll by National Institute on Retirement Security (NIRS), 88% agree that the nation faces a retirement savings crisis and 76% are concerned about their ability to retire with security and dignity.[note] Oakley, D., & Kenneally, K. (February 2017). Retirement Security 2017: A Roadmap for Policy Makers -Americans’ Views of the Retirement Crisis and Solutions. The National Institute on Retirement Security. http://www.nirsonline.org/storage/nirs/documents/2017%20Conference/2017_opinion_nirs_final_web.pdf[/note]
In Wisconsin, more than a quarter of the workers held a poverty-wage job in 2015.[note] The definition for poverty-wage jobs used here includes jobs paying a wage that is insufficient to lift a full-time (40 hours a week), year-round (52 weeks a year) worker to the poverty line for a family of four with two children. In 2015, poverty-wage jobs are those who paid employees less than $11.56 per hour.[/note] 84% of these workers had no access to an employer-provided pension benefit plans.[note] Dresser, L., Rogers, J., & Rodríguez, J., S. (2016). The State of Working Wisconsin. Center on Wisconsin Strategy. http://www.cows.org/_data/documents/1799.pdf[/note] In total, about 41% of Wisconsin private-sector workers ages 18-64 work for businesses that do not offer a retirement plan.[note] Gale, W., & John, D. (2015). Structuring state retirement saving plans: A guide to policy design and management issues. Brookings Institution. https://www.brookings.edu/research/structuring-state-retirement-saving-plans-a-guide-to-policy-design-and-management-issues/[/note]
How OWR’s Proposal Addresses It
A state-sponsored retirement plan can increase the retirement security of Wisconsin residents by providing private-sector access to a voluntary, low-risk, low-cost retirement savings plan that enables direct payroll contributions into a personal Individual Retirement Account (IRA). A recent study by Segal Consulting also found that such plans can reduce spending estimates that in the first ten years after state-facilitated retirement savings plans were established, total state spending on Medicaid would be $5 billion lower. For Wisconsin, the study estimates that the reduction in Medicaid expenditures resulting from retirement savings for the first 10 years would be $96.4 million.[note] Segal Consulting (2017). State Retirement Savings Initiatives Do More than Enhance Retirement Security for Private Sector Workers. https://www.segalco.com/media/2966/data-1-2017.pdf[/note] Another study, commissioned by AARP Wisconsin, found a saving rate of 3% among lower and moderate-income households (up to $40,000/year) may reduce state expenditures by more than $3.1 billion in 2030.[note] Krieger, J., Carter, G., and Collins, J.M. (2017). The Case for Reducing Poverty Among Seniors: Encouraging Savings for Retirement by People in Wisconsin. American Association of Retired Persons. :https://18672-presscdn-pagely.netdna-ssl.com/wp-content/uploads/2017/03/The-Case-for-Reducing-Poverty-Among-Seniors.pdf; Flaherty, J. (March 28, 2017). The Cost of Retiring Poor in Wisconsin. http://states.aarp.org/cost-retiring-poor-wisconsin-sc-wi-wp-advocacy/[/note]
Who Else is Doing This?
Over 25 states are currently considering a state-sponsored retirement plan for small business employees,[note] Pew Charitable Trusts (July 2016). How States Are Working to Address the Retirement Savings Challenge: Three Approaches. http://www.pewtrusts.org/en/research-and-analysis/reports/2016/06/how-states-are-working-to-address-the-retirement-savings-challenge[/note] and seven states are already implementing them.[note] John, D. & Antonelli, A. M. (2017). Facts and Fallacy about State-Facilitated Retirement Savings Plans. American Association of Retired Persons http://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2016/07/how-states-are-working-to-address-the-retirement-savings-challenge-three-approacheshttp://action.aarp.org/site/DocServer/AARP1119_THF_Response_SpotlightFeb8v3.pdf?docID=3301[/note] In 2012, California became the first state to enact a law – the California Secure Choice Retirement Savings Program (“Secure Choice”) – to consider the establishment of a mandatory auto-enroll IRA program for uncovered private-sector workers. Massachusetts had established in 2012 a state 401(k) plan for nonprofit organizations. Other states, such as Connecticut, Maryland, Minnesota, Oregon and Vermont, established retirement study working groups in 2013 and 2014 to build support for the introduction of authorizing legislation to create their own programs. In 2015, Illinois and Oregon enacted auto-IRA programs, and Washington, established the first state marketplace to offer employers the opportunity to voluntarily use a web-based portal providing access to low-burden, low-cost approved plans.[note] Antonelli, A. M. (2016). State Retirement Savings Programs: Current Status, Lessons Learned and Future Prospects. http://cri.georgetown.edu/state-retirement-savings-programs-current-status-lessons-learned-and-future-prospects/[/note]
Why Not Wisconsin
On February 2014, Wisconsin’s legislature introduced a bill that requires the State Department of Employee Trust Funds (ETF) to establish a panel to write a private sector savings plan.[note] Wisconsin Senate Bill 45, Proposal Text. 2015-2016 Legislature. http://docs.legis.wisconsin.gov/2015/related/proposals/sb45[/note] The State of Wisconsin Investment Board (SWIB) estimated that conducting such a study will cost $23,344 in compensation and travel expenses for a period of 18 months.[note] Wisconsin Department of Administration, Division of Executive Budget and Finance. Fiscal Estimate for the Creation of a Private Retirement Security Plan. https://docs.legis.wisconsin.gov/2015/related/fe/sb45/sb45_SWIB.pdf[/note] Despite the low costs of the study, the bill failed to pass pursuant to a Senate Joint Resolution in the last legislative session. But with changed state leadership, of course, we could do this.