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Everyone does better when everyone does better. This common sense statement of economic reality is especially true when it comes to retirement security. People over 65 make up a significant part of Wisconsin’s population (14%) and is growing. It should be obvious that
the financial well being of these folks is important to everyone. Seniors living in poverty does not bode well for the stability of the tourism, consumer spending, and medical facility based economy in Northern Wisconsin.
When seniors have adequate, secure income, the resorts, restaurants, bait shops, golf courses, health care facilities and many other small businesses in Wisconsin do better. So do all the many organizations that benefit from senior volunteers. Grandparents in poverty can become a burden to their families and increase social services costs.
Many people are getting to retirement age without the resources they need. Wisconsin, like most states in the country, is facing a retirement crisis in the years to come. According to AARP, nearly one million Wisconsinites work for an employer that does not offer a retirement plan. Many Wisconsin employers do not provide pensions with secure guaranteed income. Some provide 401k retirement savings programs but, for many reasons, these plans don’t work well for average workers. Simply put, many people will not have enough assets or income at retirement to maintain their standard of living. Many will see significant declines in their life styles when they can no longer work. Many people will be living below the poverty line. This lack of secure retirement is a recipe for disaster for individual retirees and Wisconsin’s economy.
Two Wisconsin legislators, Rep. Eric Genrich (D-De Pere) and Senator Dave Hansen (D-Green Bay), have a proposal to fix this problem. The Private Security Retirement Act (PSRA) would bring retirement security to private sector workers in Wisconsin. They have introduced legislation to study setting up a private retirement program available to all employers and employees. Rep. Genrich says,
“It is our belief that widely enjoyed economic prosperity is impossible without financial opportunity and security for all citizens. All Wisconsinites - farmers, small business owners, and the self-employed - deserve access to a safe, secure retirement option. The PSRA legislation offers just that.”
The program would be modeled on Wisconsin’s highly successful public employee retirement program - the Wisconsin Retirement System (WRS). Like WRS the funds would be managed by the State of Wisconsin Investment Board but WRS funds and private sector funds would NOT be mixed. PSRA participants would be charged reasonable management fees. TAXPAYER MONEY WOULD NOT BE USED.
Saving for retirement is a long term endeavor. It takes decades to build up an adequate retirement “nest egg” even if a person has a lot of money to save. Building the WRS into a top rated program took over 100 years of bi-partisan effort. Passing a program like PSRA is only the beginning. So it is essential to get started if the retirement problem is to be addressed. Unfortunately for many people it is simply too late. But we can start building a program for current workers and future generations.
But as is often the case with issues important to ordinary people, the Republicans are dragging their feet. PSRA was introduced several years ago and did not make it out of committee in the legislature. The Republicans have not allowed these bills to even be considered. For political, ideological reasons conservatives have always opposed working together to solve problems through government action.
In addition to inaction on needed solutions Republicans are advancing a national agenda to make individuals responsible for their own benefits. This includes saving for your own retirement and vouchers to buy you own health insurance. They push “privatizing” Social Security by letting people invest their contributions on their own. For decades they advocated for individual retirement savings plans like 401k’s. If successful, these changes would greatly benefit Wall Street at the expense of most seniors.
Although making people more responsible for their own retirement savings may sound reasonable, it doesn’t work well for a number of reasons. Most people simply don’t save enough in voluntary retirement plans. Many people do not earn enough money to make the needed contributions to their retirement savings. About half of Americans live in poverty, or are “working poor,” and are barely making it financially. They simple can not save enough to fund a secure retirement on their own.
When people do save they don’t manage their accounts well. They don’t have the knowledge, or time, to effectively manage individual investments even using professionally manged mutual funds. In addition market volatility and administrative fees eat up gains. Individual 401(k) accounts do not share risk, take advantage of economies of scale, or provide guaranteed incomes like traditional defined benefit pension programs. Research has shown that individuals in 401(k) type plans get lower investment returns, pay higher management fees, and have dramatically less at retirement than with employer managed defined benefit retirement plans.
In defined contribution retirement plans (like 401k) the risk rests with the individual. The employer is only responsible for providing the employer contribution (if any). They have no responsibility for the final retirement income, its stability, or its adequacy. With a defined benefit plan, such as WRS, the risk is shared across all the program participants. This allows economy of scale, professional management, and income stability not available with individual accounts. Defined benefit programs simply work better for most people.
Other states are moving forward on addressing this retirement problem. Other states are creating innovative programs to help people save, address the weaknesses of 401k plans, and establish secure pension programs for more people. People in Wisconsin will have to demand action on these issues or they will be left behind.