City Comptroller John Liu, staying focused on official business and not his ongoing campaign finance controversy, unveiled a new pension plan this morning designed to target what he says is a growing retirement crisis in New York City.
Here’s the problem, according to Liu, an expected 2013 mayoral candidate, who has partnered with the New School on this effort: Because benefits from Social Security average only about $1,200 per month, many rely on employer-sponsored retirement plans to supplement their income as they get older. But in New York City, between 2000 and 2009, the percentage of employers that sponsor retirement plans for their employees fell from 48% to 40%, such that a growing group of New Yorkers are at risk of facing great economic hardship when they retire. More than one-third of households in which the head is nearing retirement will have to rely almost entirely on Social Security income. Some will not be able to retire at all due to low assets.
Liu also pointed to reports that the number of elderly people in the city’s homeless shelters has shot up to 55% over the last ten years, with half of that increase taking place over the last two years alone.
Liu’s latest action comes on the heel of his office’s recent report, titled, “Are New Yorkers Ready for Retirement?”
“The answer to that was unfortunately a resounding, ‘No,'” Liu said today. “Clearly retirement is a burning issue, not only in the city but across the country.” Helping find a solution to the crisis is not only necessary for the city’s older residents, but is also important for the financial health of the city, he said. “If we don’t help people prepare for retirement, the strain from…seniors living in poverty will be overwhelming.”
The solution, he proposed, is a New York City Personal Retirement Accounts plan, which would pool employee and employer contributions into professionally-managed retirement funds, that he argues would significantly boost retirement income for those participating. This kind of plan would target smaller or mid-sized companies that don’t have retirement plans for their workers.
“This is a brilliant and surprisingly simple plan to implement,” he said.
Teresa Ghilarducci, director of the Schwartz Center for Economic Policy Analysis at the New School who designed the plan, presented specifics to reporters and others in attendance this morning.
The plan, which essentially allows private-sector workers to enroll in a city-managed pension fund, would provide retirement coverage for nearly two million workers in New York City without access to benefits through employers. It’s similar to a proposal that is now being considered by the California state legislature.
Ghilarducci explained that this kind of plan would have low fees and would offer higher returns. “The payout will be higher and the risk that people will live in poverty would be reduced,” she said. In general, this kind of plan can mandate that employers participate or otherwise the plan could be set up so that employers could choose to participate. Ghilarducci pointed out that it should be appealing to employers either way, because it gives them the ability to offer retirement benefits to workers at a low cost (as opposed to a 401(k) plan, for example).
This proposal comes weeks after the New York State Legislature passed a historic pension reform bill that cuts benefits for future public employees — which Gov. Andrew Cuomo says would save state and local governments and New York City more than $80 billion over the next 30 years.
Responding to reporters’ questions about the next step for this plan, Liu repeatedly said that his goal now is to start a conversation about this proposal, and that he has no immediate plans for legislation.
After the Voice asked the speakers what kinds of obstacles they think they might face in implementing this, Ghilarducci said that there’s been a great deal of interest in this kind of proposal, since 401(k) plans have been associated with excessive fees.
Responding to our question, Liu — though he doesn’t have a specific legislative plan yet — said that one challenge is getting people to talk about this aspect of the pension debate, adding that New Yorkers must better understand the seriousness of the looming crisis for the city’s retiring population.
“It’s clear that something needs to be done,” he said. “People…in New York City are not ready for a secure retirement.”