De Blasio delivers his State of the City (photo: Demetrius Freeman/Mayor's Office)
Experts warn that the entire country could be headed for a financial crisis caused by the fact that an aging workforce has not been saving for retirement.
Whether due to cutbacks of public pensions, the lack of retirement plans offered by private employers, or workers forced to raid their savings, it appears to a growing number of advocates and politicians that many Americans will be forced to keep working far into old age or attempt to survive on below-poverty-level support from Social Security and local welfare programs.
"If we don't make sure something is in place to prevent this, the city and state will have a catastrophe on their hands," Beth Finkel, director of AARP's New York office, told Gotham Gazette. "Ultimately these people are going to turn to the state and city to survive."
City officials cite stark statistics - only 43 percent of working New Yorkers have access to a retirement plan and 40 percent of New Yorkers between the ages of 50 and 64 have less than $10,000 saved for retirement.
It appears to be an issue that is keeping New York's political leaders up at night. It also presents an opportunity for elected officials to lead on another progressive policy matter.
Gov. Andrew Cuomo and Mayor Bill de Blasio both announced plans to confront the issue in their recent annual addresses - Cuomo's State of the State, de Blasio's State of the City. Cuomo appointed SUNY Chairman Carl McCall to head a commission to study the issue, while de Blasio said he plans to work on legislation with the City Council that would allow the city to offer retirement plans to private sector workers who are not offered plans by their employer. He outlined the framework in his Feb. 4 speech.
De Blasio's plan would make the city the first in the country to offer such a retirement program, although a few states have adopted legislation to create something similar.
Many see the issue of government-backed retirement for private sector workers as the next progressive push, after minimum wage and paid family leave. De Blasio said as much during a recent appearance on Bill Samuel's Effective Radio program. "So this is our contribution to New York City towards what I hope will be a much bigger forward march of history and it certainly aligns with what we've done on the other issues you've talked about like paid sick leave and affordable housing, pre-K, et cetera," said de Blasio. "This is a package of things that have to change urgently, not just at the local level, but up to the federal level."
De Blasio's retirement plan would require employers with 10 or more employees to offer voluntary access to a city-run retirement plan. The city would cover upfront costs of starting the plan and a board would be appointed to implement it. Employees would have their contributions automatically deducted from their paychecks. Neither the city nor the state would contribute to the plans.
Businesses would not be able to drop plans they currently offer. The bill will be crafted by the de Blasio administration in collaboration with the offices of City Council Speaker Mark-Viverito, Public Advocate Tish James, and Comptroller Scott Stringer. Representatives of the de Blasio administration did not respond when asked about a timeline to introduce a bill.
"[I]t's something the city would manage and we would put some initial investment into," the mayor told Samuels during his Sunday radio appearance. "And it would give every worker the opportunity to join a retirement security plan that they could really depend on, would not evaporate because it would be supported and backed by the City of New York, and it would mean putting their own resources into it," de Blasio said.
The de Blasio administration has also asked the federal government to act to ease burdens and liabilities the city could face in managing retirement accounts. However, not many involved in the issue expect Washington to take action anytime soon. The Department of Labor has been giving guidance to states that have attempted to implement similar programs, but has yet to issue a full set of guidelines. It is likely that the state would have to approve any city-backed retirement program.
The mayor is set to hold a press conference on the plan Thursday afternoon at City Hall at which Stringer, James, and Mark-Viverito will each also speak.
Stringer was one of the first New York officials to take on the issue, constructing a working group of nationally recognized academics to study the retirement crisis in February of last year. The group, which features academics from across the political spectrum, is expected to issue recommendations this spring.
"There's no question we have a looming crisis on our hands when it comes to retirement security – in New York and the nation," Stringer said in a statement to Gotham Gazette. "Today, 57 percent of New Yorkers lack access to a workplace retirement plan, which has huge implications both for city services and for the ability of our seniors to live out their lives in dignity."
Citing a "need to recognize that one size does not fit all when it comes to retirement security," Stringer said that his "office has been working over the past year with a diverse group of some of the nation's top academics to put together thoughtful, innovative proposals to increase retirement savings options and protect the City's budget."
Public Advocate James proposed a bill in February of last year that would have established a review commission to study the feasibility of a city-backed pension fund for private workers. The bill hasn't made it out of committee, but de Blasio's plan appears to be making it obsolete. James issued a study about the impending retirement crisis.
"There are so many major players who are committed to this that it is hard to imagine we won't get something done, but the devil is in the details," said Finkel of AARP. "I think the major players understand the urgency. Every year we put off is another year people aren't saving."
Samuels, head of public policy think tank Effective NY, said he has been lobbying top state and city leaders on the issue for a few years. Now, he said, even with interest from Cuomo, de Blasio, and a host of other city officials known to compete with each other, "There is a cooperative environment at this point." Samuels says that a number of the leaders involved in the issue have been meeting to hash out a sensible solution.
It is unclear how a state plan might interact with a city plan - whether one would override the other, or if it would make sense to have two if the state acts. Some insiders see de Blasio and Cuomo focused on an issue and wonder when the competition and skullduggery will start. Some hope that city officials will unite around one plan that will then be used by the Cuomo administration as a blueprint. De Blasio administration officials said they would welcome action by the state.
Samuels said he was first moved to address the issue during a trip to his hometown of Canandaigua, in Western New York, while talking to his old friends about their children. "Their kids, even if they had a 401K, they had to raid it for an emergency, so they have nothing for retirement. It was an eye-opener," explained Samuels.
"There is a real national problem and it's not going to get solved in Washington. We have a startling number of people heading into retirement in poverty," Samuels told Gotham Gazette. "I worked for a company that put 15 percent of my salary into retirement. Reagan convinced people they should manage their own money. So What happened was 401Ks were set up and almost all companies stopped putting any money in toward retirement."
There is debate among politicians, academics, advocates, and business leaders about how to offer a retirement plan that actually helps workers save without hurting small businesses. Issues in play include: what size of businesses to target, how to manage employee deductions, what kind of plans make sense for workers, and how to make sure plans are transferable should an employee find a new job or move. There will also be questions about management of the program, as there always are about public pension funds.
The Partnership for New York City, a leading city business group, is supportive of the idea behind de Blasio's plan. The group's president, Kathryn Wylde, said in an interview that the issue is extremely complicated and that she has concerns. "Frankly, I'd rather have the federal government or the state do something broader," Wylde told Gotham Gazette, whiling stressing that she supports de Blasio's action.
Wylde said businesses in different locales would have more of an equal footing if a retirement plan was offered by the federal or state government. She also pointed to underlying economic issues. "I'm not sure that simply providing a plan is a magic bullet," Wylde said. "People living on subsistence wages aren't suddenly going to have enough money to save. So I'm not sure there is a way to make this work without some sort of subsidy."
Mike Durant, state director for the National Federation for Independent Business, said that his members are concerned about having the state get involved in the issue, given their current fight against New York Democrats' push for a higher minimum wage and paid family leave.
"From the small employer perspective, we balloted our members on this topic last Fall with 85 percent of respondents opposed, with wide-ranging fears," Durant told Gotham Gazette.
Durant said members are concerned about liability issues, and "yet another mandate handed down by government that could potentially fail to recognize the significant differences between Main Street and big business." Costs for managing contributions could be prohibitive to small "mom and pop" businesses that operate without a formal human resources office, Durant said.
"Simply, these proposals are concerning and have many moving parts and there is definitely not a simple solution across the spectrum of business," said Durant. "Albany has definitely not proven it is capable of acknowledging the complex differences between big and small business through legislation, which adds to our concerns."
A number of states have passed legislation to implement state-backed private sector retirement plans in a variety of ways.
California adopted such a plan in 2012. There, the bill requires employers of five or more that don't offer a retirement plan to offer a savings plan similar to an IRA that is backed by the California Public Employees' Retirement System.
Illinois adopted a plan in 2014 that requires employers that do not offer a retirement plan, have been in business for more than two years, and employ 25 or more to automatically enroll employees in a state-managed plan that offers a variety of investment plans and payroll deduction levels.
Connecticut has dedicated $400,000 to the creation of a board to study and create a state-based retirement security plan. The plan must be submitted to the state by April of this year.
None of these states have begun accepting contributions to their plans and many are waiting for more guidance from the federal government.
Samuels, of EffectiveNY, said that the wide variety of opinions on how to implement a plan, the number of principles involved, and the scope of the debate are encouraging to him. "Everyone is on the same page that this is an important issue," he said. "There is lots of overlap but we are headed toward a solution. The reason I pushed the city first is I felt it would be tough to get through in the state, but the politics have changed and now Cuomo has named a commission."
Finkel of AARP said that she expects New York City will lead on the issue and that cities and other states across the country will follow.
"Studies tell us that people are 15 times more likely to save if they have something automatically deducted from their paycheck. It's low-hanging fruit and I would hope that New York City will be the first city in the country to implement this kind of plan."
by David King, Albany editor, Gotham Gazette