State GRAs a Solution to the United States' Retirement Crisis
NEW YORK -- The United States faces a retirement crisis that threatens future retirees and the next generation of workers. The voluntary employer-sponsored retirement system covers fewer and fewer Americans, often leaving Social Security, originally intended as a supplement to other forms of retirement, as the major source of income for 40 percent of older Americans. Even workers still covered by an employer retirement plan have had their benefits weakened.
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A new report from Demos Policy Analyst Robert Hiltonsmith, New School Economics Professor Teresa Ghilarducci, and New School PhD candidate in Economics Lauren Schmitz, offers a solution in State Guaranteed Retirement Accounts (GRAs). These low-fee, portable accounts would provide lifelong income, guaranteeing returns of at least 3 percent. The policy proposal would also limit the excessive fees charged by 401(k)s that erode a worker’s retirement account by as much as 30 percent.
In the absence of a nationwide retirement system to solve the upcoming retirement crisis, State GRAs would help workers bridge the gap between Social Security and their retirement needs.
“All workers need a supplemental retirement plan that invests their savings efficiently with low costs, earns a secure and sufficient rate of return, and preserves savings for retirement,” said report author and Demos Policy Analyst Robert Hiltonsmith.
It is more important than ever that we come up with innovative solutions – and the states are at the forefront of this fight.
“When half of the workforce has no retirement plan, it is more important than ever that we come up with innovative solutions – and the states are at the forefront of this fight,” said Teresa Ghilarducci. “We hope this policy can serve as an incubator for a comprehensive national solution.”
Ghilarducci originally presented State GRAs to California policy makers at the University of Berkeley in October of 2011. Included in the publication of "Meeting California's Retirement Security Challenge,” the proposal served as an early model for the California Secure Choice Retirement Savings Trust Act. The law lays the groundwork for a broad-based, state-administered retirement savings plan that will expand coverage for private-sector workers who do not have an employer-provided pension or retirement savings plan.
State Guaranteed Retirement Accounts would expand access and address the critical failures in the existing system by meeting three key criteria for retirement income security:
- Help workers make adequate retirement account contributions and prevent early withdrawals.
- Provide low-cost, quality investment vehicles that are professionally managed, and help shield individual workers from investment and market risks.
- Provide a lifetime guaranteed stream of income at retirement.
Creating a nationwide, individual retirement plan that incorporates the goals of adequate contributions, safe and appropriate investments, and lifetime income, would efficiently and practically solve the upcoming retirement crisis. But if national policymakers won’t act, each state can tailor the State GRA plan—which meets all of the above criteria for an efficient and adequate retirement savings plan—to meet their unique needs and to secure retirement income for each state’s workforce.
To speak with an author of the report please see the above contact information.
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