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OP-ED | A Better Retirement Future

by Martin Looney & Joe Aresimowicz | Jul 17, 2014 5:30am
(9) Comments | Commenting has expired
Posted to: Opinion, Pension

CTNJ file photo

Sen. Martin Looney at the podium with Rep. Joe Aresimowicz to the left in the photo

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.

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(9) Comments

posted by: GuilfordResident | July 17, 2014  7:48am

Umm ... aren’t there methods to save for retirement already? 401K, IRA, Roth IRA? Whoever is electing these people, please stay home next election. My feasibility study is concluded. Please deposit the $400K into my savings account.

posted by: joemanc | July 17, 2014  9:48am

Can someone tell Martin Looney that you can open your own retirement account at a bank? I’ve done it myself! Why the state needs to get involved is beyond me.

posted by: One and Done | July 17, 2014  11:27am

Dumb and Dumber.

posted by: Noteworthy | July 17, 2014  5:18pm

When I read the headline, I thought Martin Looney was retiring and we’d all have a better future. lol..the state treasurer will be involved with her lackluster returns? She already has more than she can say grace over - bad idea all around.

posted by: perturbed | July 17, 2014  10:38pm

perturbed

It’s really ironic: The ignorance of the tremendous advantage of defined benefit plans displayed by those who so vehemently oppose them only highlights why they are so needed.

Folks generally have no clue about the risks of failure and/or the huge sums of money required when forced to go it alone in IRAs and 401ks. Here’s a simple reality check: multiply your 401k balance by 4% (that’s 0.04). That’s roughly what you can reliably withdraw from your savings on an annual basis (with small adjustments tied to inflation) over a 30-year period, without running out. Pay taxes on that, pay your financial advisor’s fees and investment expenses, and you get to spend what’s left. Everybody good with that?

If you’re fortunate enough to be in the two comma club, congratulations! If not, you’d be better off fighting for a defined benefit plan than against one.

wink

—perturbed

PS: It would be interesting to see if anyone can identify an actual reason why they oppose this proposal.

posted by: perturbed | July 17, 2014  10:43pm

perturbed

@Noteworthy—what benchmark are you using to measure the performance of the State Treasurer?

—perturbed

posted by: One and Done | July 18, 2014  9:23am

@Perturbed.  Defined benefit plans are why this country is in the gutter right now.  They breed incompetence and lack of accountability.  People who work for a living understand this.  People who suck off the tit of government either through welfare, corporate welfare, or pretending to work for the government are the ones who have no clue.
.
As for the treasurer’s financial benchmark?  How about only 1% return on the state’s portfolio last year?  A corpse could have done better in last year’s market.  If you only put 25% in equities you would have a 4% return.  Did she buy bonds from the city of Detroit?

posted by: joemanc | July 18, 2014  11:00am

“It would be interesting to see if anyone can identify an actual reason why they oppose this proposal.”
Uhm, because it’s a low risk investment. You can make a LOT more money in a 401K/IRA than you can with this proposal. In addition, the accounts would be professionally managed, presumably by banks. You know, the same ones who offer the 401K’s/IRA’s.
Also perturbed - how many pension plans by now defunct corporations have been dumped on to the insolvent PBGC? Tremendous advantage huh? And I’m ignorant?

posted by: jim black | July 18, 2014  11:24am

Another fund for the government to raid, plain and simple.