As our citizens approach retirement, far too many of them rely exclusively on Social Security as retirement income. While Social Security has lifted many senior citizens out of abject poverty, it does not in fact provide a decent living for those with no other source of retirement income. This problem will become one of extraordinary urgency as more and more baby boomers reach retirement age.
But change is on its way. We are proud to say that Connecticut has taken a crucial step forward to address this crisis. On June 17, the Governor signed Public Act 14-217 which appropriates $400,000 to create the Connecticut Retirement Security Board. Chaired by the State Treasurer and State Comptroller, the Board will conduct a market feasibility study which will lead to the creation of a cost-effective, state-run retirement option for private-sector workers by April 2016. It is the largest investment that any U.S. state has made toward resolving this crucial problem.
The plan will consist of voluntary contributions from employees made via payroll deduction which will be deposited into a professionally-managed retirement fund. All workers will be provided the chance to enroll in a retirement savings program for which employers would not bear any fiduciary responsibility or be required to pay administrative fees. Moreover, several studies have shown that employees are far more likely to contribute to retirement savings if payroll deduction is an option. The program is designed to be self-sustaining and low-risk due to the modest guaranteed rate of return and long investment horizon. In addition, the state would have no liability due to the requirement that the Board secure private insurance to protect the returns earned by program participants.
The percentage of private sector Connecticut employees whose employers offer a retirement plan has fallen from 68 percent in 2001 to 58 percent in 2012. It is not just older residents who are affected; the statistics for younger workers are equally alarming. In 2010, as many as 43 percent of Connecticut workers age 25-44 weren’t enrolled in any kind of retirement plan. Without action, once that generation ages, taxpayers will acquire an unsustainable burden. The three-legged stool (employer-provided pensions, Social Security, and personal savings) is losing one leg.
Many Connecticut citizens whose employers do not offer retirement plans are moderate income workers who are most in need of income beyond Social Security, for which the average benefit is only $15,228 annually. In addition, most workers of moderate income struggle to set aside adequate amounts in personal retirement savings since their earnings and ordinary expenses barely balance. It’s unfair for these workers, who have worked hard for years, to be forced to choose between living in poverty and working well into old age.
This plan is the first step toward rebuilding the third leg of the stool for all of our retiring workers. It is the bold move Connecticut needs. If we wait, we will be forced to address a retirement security crisis; the outcome will be better if we make a plan now.
Sen. Martin Looney is the majority leader in the Senate and Rep. Joe Aresimowicz is the majority leader in the House.