Doug Dickerson, State Director,
AARP North Carolina
“How can North Carolinians foster savings and staff off a poverty crisis? “If you have a pension, you’re one of the lucky ones,” says a Duke economist, acknowledging that over the past few decades most employers have shifted away from maintaining a pension fund for their workers and former employees.
Increasingly, it’s up to individuals to save on their own, usually through a 401K from their employer or from opening an Individual Retirement Account. Yet many workers find themselves near retirement without the retirement income or savings needed to stay off public assistance programs.
A 2014 Employee Benefit Research Institute study found that about 62 percent of employees with access to a retirement plan had more than $25,000 in total savings and investments while 22 percent had $100,000 or more. However, only six percent of those without access to a plan had more than $25,000 saved, and only three percent had $100,000 or more.
Thank goodness for Social Security, right? Unfortunately, Social Security was never intended to be the sole income for retirees. Yet for nearly one-third of North Carolinians age 65-plus, it is their only income with an average benefit of less than $1,300 a month. Unless Congress and President Trump make it sound and sufficient for current and future generations, Social Security will be forced to cut benefits by 25 percent starting in 2034.
Not having enough savings in retirement is creating serious anxiety, according to an August AARP survey when 51 percent of likely voters in NC confessed to being uneasy about their financial future. While any worker can open an IRA, buy an annuity, make investments, or stuff a mattress, surprisingly few low and middle-income workers actually save for retirement unless the money can be saved immediately from their paycheck.
For workers earning between $30,000 and $50,000, about 72 percent participated in an employer-provided retirement savings plan when available while less than five percent without an employer plan contributed to an Individual Retirement Account.
Recognizing that partisan battles in Congress are unlikely to address the growing risk that large segments of our population are aging into poverty, states are finding their own solutions. Since 2014, 35 states including North Carolina have legislators pushing forward proposals to do the same.
What would a Carolina version look like? There are some basic principles:
• Most of the companies that do not offer a retirement plan are smaller
businesses; it’s essential they aren’t forced to take on significant
financial, administrative or regulatory burdens.
• Workers should have access to an automatic payroll deduction,
the easiest way to save.
• Workers should have simple, low-cost retirement savings plans that
make enrollment automatic. The plans must not require complex
investment and savings decisions and should provide low-cost,
automatic (default) options.
• Workers should be able to keep their retirement savings plan when
they change jobs or have multiple jobs.
• Workers should be able to change the amount saved, change
investments, or stop saving entirely.
• Employers should be able to use current payroll processes to easily
forward employee contributions to a savings plan.
• Employer contributions should not be required but should be permitted
if allowed by federal law.
• Investments should be low cost, provide good value, and be
professionally managed.
• Programs should be self-sustaining.
When the NC General Assembly convenes in January, it can choose to enable workers to save for their future and break the reliance on state programs for the poor, or not take action and deal with the increasing odds of a growing, impoverished older population.