When Dr. Dena Davidson graduated from the University of California, Berkeley School of Optometry in 1995, her expectations were pretty reasonable. "I knew being an optometrist was not going to make me rich," she says. "But I felt I would be fairly comfortable." To her, that meant a good salary that would afford her a decent lifestyle. It also meant the ability to save money for retirement. She anticipated that her future employers would provide the means for her to do this, either through a company-sponsored 401(k) or Individual Retirement Account, but it didn't work out that way. For over half of the last 17 years, much of it spent working independently or for small practices with limited resources, Davidson has been among the millions of Americans without access to an employer-sponsored retirement savings plan. Experts say this is becoming a serious issue. While Davidson, 43, set up her own Roth IRA and Simplified Employee Pension (SEP) 401(k), she is far more the exception than the rule. Americans are notoriously poor savers (around 4 percent annually) in comparison to the rest of the industrial world (around 10 percent). Now, with legions of Baby Boomers heading toward retirement with barely more than Social Security to live on, some state and federal lawmakers are trying to prod these workers to help themselves stave off living their Golden Years in poverty. The most active effort has been in California, where Sen. Kevin de Leon's (D) SB 1234 recently cleared the Senate. That legislation would create a private-sector pension plan for workers without an employer-sponsored retirement plan. It would allow workers at companies with five or more employees to put 3 percent of their gross income into an investment pool overseen by a professional retirement management company under the auspices of the treasurer's office, with investments tied strictly to U.S. Treasury bond rates. All eligible workers would be automatically enrolled but could also opt out, and employers would be able - but not required - to match their employees' contributions. They would, however, have to use their payroll system to make their workers' pension deposits or face steep fines. Employers would incur no other administrative fees or bear any of the usual fiduciary responsibilities that come with a retirement plan. Workers at jobs with 401(k) or other such vehicles would also be eligible but would have to handle their own deposits. The result would be each participant receiving a small yet-to-be-determined pension to supplement their Social Security income. Comparable proposals are also pending in Massachusetts (HB 1194) and Illinois (SB 1844), as well as in both the U.S. House of Representatives (HR 1534 & HR 4049) and the U.S. Senate (SB 1557). President Barack Obama has also proposed an automatic IRA option for all U.S. workers in his last two budget proposals. In a statement, de Leon said California is facing a $600 billion personal retirement income deficit, making the bill vital to prevent the state from becoming "home to a sea of discarded seniors." It is no idle concern. According to a 2011 AARP study, 25 percent of all U.S. workers 50 or over exhausted their entire life savings getting through the "Great Recession." Another study from the National Bureau of Economic Research shows that half of Americans would struggle greatly to come up with even $2,000 for a financial emergency. A March survey from the Employment Benefits Research Institute showed that 30 percent of workers have saved less than $1,000. Given Social Security's well documented funding struggles, counting on that is also an iffy proposition. Even so, many people approach retirement planning the way they would a root canal - best avoided until there is no other choice. Most workers in fact rely exclusively on employer-sponsored retirement plans to save money for their Golden Years. But according to the Brookings Institute, about half of all working Americans - around 78 million - don't have such access. Although anyone could follow Davidson's example and save for retirement on their own, far too many people simply don't. The U.S. Commerce Department reported in February that after spiking at around 8 percent in 2008, Americans' monthly savings rate has dropped below 4 percent. We are also still deeply reliant on credit. Commerce reported in April that while Americans' consumer debt has fallen by about $600 million since 2008, our collective debt total is still $13.2 trillion. CreditCard.com, an online consumer credit card marketplace and news site, reports that the average U.S. card holder is carrying almost $16,000 in balances. Many experts say the long-term impact of millions of Baby Boomers retiring with such deep debt while clinging only to the rickety life raft of Social Security will create a tsunami of near-poverty retirees dependant on taxpayer-funded safety net programs like Medicaid. That scenario has helped de Le~n's proposal draw support from groups like AARP of California. But it is also not without detractors. Former Assemblyman Roger Niello, now President and CEO of the Sacramento Metropolitan Chamber of Commerce, questions the bill's timing. "What do you do politically when there's lots of pressure for some kind of public pension reform and you know you can't do it? The answer is you change the subject, which is what this bill does," he says. The bill's defenders vehemently deny the accusation. "Not true," says Senate pro Tem Darrell Steinberg (D). "We're going to get pension reform done this year regardless. This proposal is totally separate." Gregory Hayes, Sen. de Le~n's communications director, is even more emphatic. "This bill has absolutely nothing to do with public sector pension reform. Nothing at all," he says. But there are other concerns. Mike Genest, California's budget director under former Gov. Arnold Schwarzenegger, supports the bill's intent and believes it would work under its current conditions. But he also doubts lawmakers will adhere to those conditions over the long term. "Imagine 15 years from now if every private sector worker has this pension, and it is just a fraction of what the state provides to its own employees," he says. "How long is that going to be politically sustainable? How long will the Legislature be able to say to the private sector 'That's all you get?'" If lawmakers succumb to pressure to up the pension benefit, he says, any shortfalls could end up coming from the state's General Fund. But Hayes counters that the bill requires a full feasibility study before the pension plan could be enacted. Even that study must be paid for with funds that come from somewhere other than the General Fund. "The bigger fear here should be that we're going to have millions of people retiring into poverty," he says. "When these people retire, it's going to put a terrible stress on our social safety networks." Hayes also scoffs at the idea, proposed by some, that the lowest wage earners will not be willing to part with even a small portion of their pay to put into the plan. "We're only talking about 1.7 cents of each dollar," he says. "Not to be insensitive, but it's hard to have much sympathy for losing that small of an amount of money each month." David John, an analyst with the conservative-leaning Washington D.C.-based Heritage Foundation, helped craft the bills pending in Congress. He did so in 2009 with a man named J. Mark Iwry, who at the time was his counterpart at the liberal-leaning Brookings Institute, also in D.C. While it seems impossible in this day and age that two people from opposite ends of the political spectrum could agree on anything, John says the need to get Americans to save more for their retirement goes beyond all party lines. The real question is how to go about doing that. The plans put forth in Congress (HR 4049 and SB 1557) are very similar to de Le~n's California bill with one significant exception: no panel would oversee worker's pension contributions. Employers would instead be required to choose a private sector funds manager from a list provided to them by the government. They would not be required to match any contribution - and in fact would not be allowed to - and have no responsibility to ensure workers are enrolled. Any costs would be offset by tax breaks equal to those costs. "The automatic mechanisms that we have put into our proposal are not 'best case' but 'good case' investments," he says. "Even if an individual does nothing, they will still have a retirement savings level that is a better outcome than waiting for a perfect investment or, worse, doing nothing." The debate over whether issues like this are best handled at the state or federal level is often as toxic as the battles between parties. Lynn Dudley, Senior Vice President for Policy at the D.C.-based American Benefits Council, says in this case some things favor a national policy. "These things can be really expensive for states," she says. "Record keeping always costs more than you think it will. And having 50 different versions would also make it much harder for people to be able to move from state to state." Davidson says she also wonders about such details. And in spite of Hayes' admonitions, she questions how many low-wage workers living hand-to-mouth each month would put even a few dollars into such an account each paycheck, particularly those who don't come from an upbringing like hers, which included parents who emphasized saving money and staying out of debt. Even so, she thinks SB 1234 is something worth pursuing if only as a matter of fairness. "I felt cheated," she says in reflecting on her time without access to an employer-sponsored retirement plan. "I like the proposal because it is mandating opportunity. Whether people take advantage of it or not is on them, but it isn't fair that they don't have the opportunity."
— By Rich Ehisen
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