STEMMING THE RETIREMENT CRISIS: WV Voluntary Employment Retirement AccountsNorthern Regional Policy Workshop & Community TrainingsGaston Caperton Center, Fairmont State University - July 22, 2014

TED BOETTNERSEAN O’LEARYANGELA VANCE

OVERVIEW

• The Retirement Problem – Retirement Income Deficit - $6.6 trillion– 38.3 million working-age households (45%) have no

retirement account assets– 4 out of 5 working households have saved less than 1 year

of income for retirement– The median retirement savings balance for households

nearing retirement is only $12,000– Leading causes of poverty among elderly – Lack of retirement assets a potential drain on future

budgets

Why aren’t workers saving for retirement?

• Most workers lack access to workplace retirement plans.

• Only 43% of WV’s private sector workforce is included in a workplace retirement plan

Employer

does

not of -fer a

plan47%

Employee is not included in plan

10%

Employee is in-

cluded

in a workplace

plan43%

Participation in workplace retirement plans (2011-2013)

Source: WVCBP analysis of 2011-2013 American Community Survey data (3-year average). Universe: private sector workers in West Virginia

Low-wage workers are less likely to have workplace retirement plans

Less than $25,000

$25,000 - $49,999

$50,000 - $74,999

$75,000 - $99,999

$100,000+

18%

52%

67% 70%76%

Share of WV workers included in a workplace retirement plan, by annual income (2011-2013)

Source: WVCBP analysis of 2011-2013 American Community Survey data (3-year average). Universe: private sector workers in West Virginia

Small businesses are less likely to have workplace retirement plans

Under 10 10 to 49 50 to 99 100 to 499 500 to 999 1000+

19%

31%

41%

49%55% 56%

Share of WV workers included in a workplace retirement plan, by firm size (2011-2013)

Source: WVCBP analysis of 2011-2013 American Community Survey data (3-year average). Universe: private sector workers in West Virginia

Young workers are less likely to have workplace retirement plans

25-29 30-39 40-49 50-59 60-64

37%

46%49%

54% 54%

Share of WV workers included in a workplace retirement plan, by age (2011-2013)

Source: WVCBP analysis of 2011-2013 American Community Survey data (3-year average). Universe: private sector workers in West Virginia

West Virginia’s retirees rely heavily on social security

Less than $15,000

$15,000 - $19,999

$20,000 - $29,999

$30,000 - $39,999

$40,000+

89%83%

62%

38%

17%

Social Security as a share of total income for WV seniors, by annual income (2011-2013)

Source: WVCBP analysis of 2011-2013 American Community Survey data (3-year average). Universe: population aged 65+ in West Virginia

Social Security makes up 44% of average senior income in WV, with an average monthly benefit of $1,300.

Roadblocks to retirement security

• Access to a workplace plan is second only to having a job as the most important factor in building retirement security.

• But with 350,000 workers in WV without a plan, the current system isn’t working.

Roadblocks to retirement security

• Small businesses are charged much higher administrative costs than large employers.

• Administrative costs for employers with fewer than 50 participants average 0.43% of plan assets, compared to 0.22% for larger employers.

• Small employers are also more likely to face higher investment fees.

Roadblocks to retirement security

• Small balance accounts are less profitable, and therefore less marketed and pursued by providers.

• Tax incentives designed to encourage saving favor workers with higher incomes.

• Consumers often face multiple, confusing options, making it difficult to make an informed decision

Expanding access to retirement savings through VERA

• A state sponsored system of Voluntary Retirement Accounts could make it easier for workers to save for retirement, and for businesses to offer benefits.

• Legislation introduced in 2014 would have established a VERA program in West Virginia.

Benefits of VERA

• WV, through the Treasurer’s Office, would provide a selection of low-cost investment options.

• The state would also serve as a resource in assisting in enrollment, contributions rules, and investment performance.

• The state’s role in VERA would be similar to its current role in the Smart 529 program.

Benefits of VERA

• By pooling participants, the state can use its leverage to offer affordable, low-cost plans.

• VERA can be run at no costs to the taxpayers, with start-up costs recouped from fees.

• The state would also not be responsible for investment gains or losses.

Conclusion

• Thousands of West Virginia’s workers aren’t saving for retirement.

• Most workers lack access to easy and affordable retirement plans.

• VERA offers a practical way to meet an unfulfilled need in the market, ensuring that all workers in West Virginia have access to affordable retirement savings options.