Source: Teresa Ghilarducci, Robert Hiltonsmith, Lauren Schmitz, Dēmos, November 2012
From the summary:
Our nation is on the brink of a retirement crisis that could have severe consequences for both future retirees and society as a whole. The steady erosion in the voluntary employer-sponsored retirement system has made it more difficult for workers to save for retirement. This crisis will not only impact retirees, but the next generation of workers, who will be left with the tab when federal, state, and local governments are forced to expand to help millions of additional elderly Americans who will be living in poverty…
…In some of the most populous states, the share of uncovered workers has risen more dramatically than the national average. This alarming trend is a call to action for state and local policymakers who want to prevent old age hardship by ensuring all workers can invest adequately, efficiently, and safely for their own retirement….
…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. Therefore, the policy challenge is to expand access to individual account-based retirement plans and to address the critical failures in the existing system by making a new retirement savings vehicle available that meets three key criteria for retirement income security:
- Helps workers make adequate retirement account contributions and prevents early withdrawals.
- Provides low-cost, quality investment vehicles that are professionally managed and helps shield individual workers from investment and market risks.
- Provides 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 ifthe nation’s policymakers won’t act, each state can tailor the State Guaranteed Retirement Account 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….
…Given the current state of retirement income security in the United States, we propose states offer all workers a voluntary, low-fee, low-risk, retirement plan to help boost savings for retirement….State Guaranteed Retirement Accounts (State GRAs) are individual “cash balance” accounts where benefits at retirement are based solely on contributions and returns. A cash balance plan is an already-existing type of defined benefit pension plan that incorporates some features of a defined contribution plan….