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Cutting Edge of the Common Good

Towards universal retirement

Matthew Daley for The Boston Globe

For a great many Americans, planning for a life after their working years comes down to two words: wishful thinking.

How does one explain the fact that nearly half of all working-age families in this country have no retirement savings?

Yes, death and taxes are the only two points of certainty in life. But advanced age — with all its unpredictable infirmities — is a close third. If you plan to extend your stay here, you must also plan for a time when you can no longer punch a clock.

Due to a constellation of factors too numerous and complicated to relitigate here, the most popular national mechanisms for retirement savings — public and private — have stumbled badly. Massachusetts can and should do better.


Broadly speaking, the shift from defined-benefit pension plans to defined-contribution plans, coupled with an increase in life expectancy, has created a growing gap — no, a chasm — between the amount of financial wherewithal that Americans need if they hope to live comfortably in retirement and what they are actually accruing. Meanwhile, one-third of current retirees who couldn’t or didn’t save rely totally on Social Security, a heavy reliance for which the system was not designed.

The depth of this problem is too easily depersonalized. So, meet Mackinley Celestin. He’s 42 years old and lives in Mattapan. He works three jobs — as a security guard in Downtown Crossing, a part-timer at the McDonald’s in Central Square, and as a security guard at a nightclub in Cambridge. After all this, he earns about $30,000 a year.

If he wore bootstraps, they would have frayed long ago from all the tugging.

His three children are part of the reason he’s been unable to save, but he still thinks wishfully. “I don’t want to work when I’m 70. I see a lot of people like that, but I don’t want to be like them.”

From a public policy perspective, the fight against rising income inequality has been focused like a laser on issues such as raising the minimum wage, improving education, and securing medical and family leave. Important issues, to be sure. But so too is empowering workers to save for the future.

The gap between what Social Security will pay Americans like Celestin and the cost of life after age 65 has to be made up somehow — by raiding college funds, taking out additional mortgages, continuing to work, or accepting, as half of future retires will be forced to do, a reduced standard of living.


It is tempting to sit back and let our productive and cooperative Congress implement reasonable fixes to Social Security and other programs that could help improve Americans’ life after retirement. Or bet everything on Powerball. The odds of success are about the same.

Which is why forward-thinking states have struck out on their own to stay on the cutting edge of our common welfare.

Massachusetts should look to states like California, which earlier this year approved a plan to automatically enroll 6.8 million employees without retirement coverage into individual retirement savings accounts. The plan applies to businesses with five or more workers, and there’s an employee opt-out — a structure that’s inclusive by default, yet nimble enough to avoid being branded a mandate. Seven other states have launched similar efforts.

Ideally, states would be able to take advantage of economies of scale by offering some sort of public 401(k), the same way that other nations, like Canada, help augment their old-age safety net. Federal law, however, forbids states from doing so.

Last year, the US Department of Labor relaxed regulations that had restricted states from serving as fiduciaries for multi-employer retirement plans, which enabled states to don green eyeshades. Massachusetts should seize this chance to move toward more universal savings.


For generations, Americans put aside money toward defined-benefit retirement plans offered in the workplace. But in the last couple of decades, the 401(k) has displaced these pensions as the most common type of retirement benefit. Workers are also free to set up individual retirement accounts.

These private accounts have proved wildly successful for the well-off — and the financial firms that run them. But not so much for those who need them the most. The median family between the ages of 31 and 61 has $5,000 sitting in a retirement account. Many black, Hispanic, low-income, unmarried, and non-college-educated people have no savings in these accounts at all. Not a dollar, not a dime.

Unsurprisingly, young people, people of color, and low-income workers have the lowest access rates to employment-based retirement savings plans. In total, more than 55 million Americans don’t have access to any, according to the AARP. Even the share of private sector employees who have access to a 401(k) has remained flat since the late 1970s. At the same time, the traditional pension continues to die off: Last year, only about 20 percent of Fortune 500 companies offered one to new employees, down from nearly 50 percent of the firms in 2005.

In Massachusetts, 1.2 million employees, or about half of the state’s private sector workforce, lack access to a workplace retirement plan. And that’s not counting the workers who are offered but do not enroll in workplace plans. Only 5 percent of workers without a workplace retirement plan contribute to an IRA regularly.


“If you don’t have a mandate, nothing is going to happen,” says Alicia Munnell, director of Boston College’s Center for Retirement Research. “Unless you automatically enroll people in it, you’re not going to see any action.”

Automatic individual retirement accounts are not new. In 2009, the Obama administration proposed a plan to expand coverage, but the idea has gone nowhere. That’s why states have stepped up with proposals like the one approved in California. Now more and more states are considering them in the face of the looming crisis.

In the last few years, more than half of states have considered initiatives to launch government-run retirement plans for private sector workers. In Massachusetts, several recent efforts to enact a state-run retirement savings account program have died on Beacon Hill.

“This isn’t simply a nice thing to do or a good thing to do — it’s a necessary thing to do,” said Secretary of State William Galvin, who filed one of the doomed bills. His proposal directed any company with more than 25 employees that didn’t offer a retirement plan to participate in the state-managed program. “If we don’t do something, ultimately this will become a government burden.” (A second, similar bill would have required businesses with more than 10 employees to participate and differed on how the plans would be administered. Even a proposal to establish a commission to study the issue was promptly killed.)

The Galvin option, for example, would have come with little to no cost to employers and not much cost to the government. Uncovered employees would be enrolled automatically but would have the choice to opt out. Contributions would be automatically deducted from a worker’s paycheck, and the state would put out a bid to pick the private investment firm that would manage the funds.


The proposals by Galvin, H. 939, and the Service Employees International Union, H. 924, have some differences related to the size of the businesses that would be required to participate — Galvin’s would be restricted to businesses with more than 25 employees and the SEIU’s more than 10 — and in how the plans would be administered. The SEIU proposal would also create an option for employers to join a plan where they would make matching contributions. Both proposals offer a starting point for future discussions.

Making financial options available to a greater number of people requires some careful thinking. Stocks and bonds and other financial instruments don’t always go up, so regulators ought to be careful and cautious about the options that the people in the plan would have.

In California, for example, the plans start with very conservative, low-risk investment options. But ultimately, if such a plan is going to work, the new automatic IRA participants need to have options similar to those that anyone else has. Otherwise, money won’t grow over time, as it has historically done for others who enjoy the benefits of 401(k) and IRA plans.

The financial services industry has predictably opposed efforts to establish a state-administered private pension plan. They’re worried about their own bottom line. That’s their right.

Yet this is clearly a case where the market has failed. A public retirement option that leverages economies of scale would bring in workers who are outside the savings system, and help them help themselves toward a more secure retirement.

For a low-income worker who starts modestly at age 25 and contributes consistently, a small investment could snowball over 40 years into a true nest egg. Everyone deserves a chance to accumulate, slowly and surely, the kind of assets that undergird a secure retirement. It’s not too late, and it’s not just wishful thinking for workers like Mackinley Celestin to start saving enough to make a big difference in his future — and that of his children.