It’s something almost all of us should be worrying about. Unless you’re young, independently wealthy or have a good government job or the equivalent in the private sector, you’re probably wondering how you’re going to survive when you can’t work anymore.
If you depend on Social Security alone, you’ll likely wind up spending your golden years in poverty. You might even require further public assistance just to make ends meet. There is a certain amount of injustice to that if you’ve worked hard all your life and played by the rules.
A couple of years ago, led by Senate President Martin Looney, D-New Haven, House Majority Leader Joe Aresimowicz, D-Berlin, and Comptroller Kevin Lembo, the General Assembly passed a bill creating a quasi-public state agency called the Retirement Security Board “to address the growing retirement crisis in Connecticut.”
While trying to sell their plan to their fellow legislators, they are pointing to the results of a recent survey that found 61 percent of voters ages 35 to 64 support a public retirement plan of the sort legislators and Lembo are proposing. Of course, they conveniently left out those between 18 and 35 — presumably because including those workers would have pushed the numbers below 50 percent. Young people, you see, aren’t terribly concerned about retirement; nor do they have much faith in the government’s ability to manage it, though I’m told that’s beginning to change.
Most people like me — those who will be fairly well taken care of after we’re done working — might be asking themselves, “What retirement crisis?” Well, according to the state, there’s an estimated 600,000 to 700,000 Connecticut residents with no access to a retirement savings account through a payroll deduction. The number has grown over the years. Looney says an estimated 68 percent of Connecticut employers offered plans in 2001 and only 58 percent offered them in 2012.
And why is payroll deduction so important? Couldn’t any worker just put money voluntarily into an IRA or the equivalent? Yes, workers could do that but few will save for retirement unless it’s actually taken involuntarily out of their paychecks for them, as Social Security is.
Both Lembo and the lawmakers who support the retirement program have, when asked, acknowledged that the program must come at little or no cost to the state. The retirement board recently released a report estimating that a public retirement program would need about $1 billion in assets to become self-sustaining. The board says if everyone eligible to enroll in the program did so and contributed up to 6 percent of their earnings, then the program would be self-sustaining at the end of year two.
The House passed the bill that would create the program in the wee hours of Tuesday morning and it’s unclear what will happen in the Senate. The financial instrument offered in the bill would be a Roth IRA, instead of a traditional IRA, which comes with tax benefits. You see, the state wants to see this happen, but not at the cost of an estimated $10 million in revenue.
“We’re told this way would be better for low-wage workers,” Rep. Peter Tercyak, D-New Britain, said, defending the change with a straight face.
The libertarian streak in me resists this idea. It just sounds like one more reason for people not to pay better attention to their own finances because in the end someone or something will take care of them. The problem with that line of thinking of course is that those without retirement plans, whose ranks are rising, will invariably seek public assistance for the simple reason that Social Security income is insufficient for most retirees’ basic needs. If we compel them to save for retirement, then it makes it less likely they’ll be dependent on taxpayers for sustenance in their golden years.
My nervousness comes at the thought of creating yet another “quasi-public” state government entity. These oddball agencies seem to operate with limited transparency and accountability compared to their public- or private-sector counterparts. For the most part, these entities are expected to generate revenue as a business would, but they don’t attract the kinds of entrepreneurs who can run them as efficiently as the private sector, so invariably they run into problems. Remember what a disaster the now-defunct Connecticut Resources Recovery Authority was?
According to the bill’s fiscal note, lawmakers think the newly formed board will need at least $500,000 to $1 million to run the fund. And with a 3 percent contribution rate, it’s anticipated the board might be financially self-sustaining three to four years after the program starts.
Right. It goes without saying that government budgets almost never actually shrink. I would feel a lot more comfortable supporting this idea if fiscal self-sufficiency was guaranteed in the bill. And of course there is the perpetual concern that the General Assembly will try to raid the fund to pay for other preferred causes, as has happened with teacher and state employee pension funds. But even if that’s strictly prohibited in this case, couldn’t lawmakers simply change the law?
Still, something needs to be done and if lots of employers in the private sector insist on offering no retirement plans, the state has an obligation to step in, lest we continue to be responsible for the long-term legacy costs of low-income retirees, in addition to hundreds of thousands of state employees.
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