The mythic promise of the American economy has always been a linear one: You learn a trade, work hard, and, one day, you’ll be rewarded in retirement.
Over the past decade — and particularly after the 2008 recession — that dream has been profoundly tested. According to a Harris Poll last spring, 78 percent of all Americans said they were “extremely” or “somewhat” concerned about their retirement savings. One in five, meanwhile, have no savings at all and, for those who do, approximately one-third have less than $25,000 saved for retirement.
In Wyoming — where the senior population is growing at a faster rate than the rest of the country, according to state figures — this issue is particularly pressing.
For the 2019 interim session, the legislature’s Joint Committee on Labor, Health and Social Services has made the state’s aging population its chief priority, focusing on concerns including the availability and nature of long-term care facilities, home-based services and workforce needs for elder care.
Among those is the issue of retirement income security, which was the focus of a state Task Force on Retirement Income Security report released in December.
Submitted just after the close of last year’s interim session, the report was not presented to members of the legislature in time for the start of the 2019 general session, meaning its first formal hearing will likely come at the first meeting of the committee later this spring.
What those discussions will look like is unclear so far, committee co-chair Rep. Sue Wilson, R-Cheyenne said.
“Right now, I don’t have a good sense of what follow-up to the task force itself we might have, but aging is one of the major issues we will be considering over the interim,” Wilson said. “Whether there’s more material in the task force report that would speak to other needs of the aging population, I’m not sure. We might just want to hear from the task force as far as what’s doable or something else.”
What would a state level response look like?
There are options available to address the looming crisis at the state level.
How many of those would be sustainable for the state’s budget, or for that matter palatable to Wyoming residents, is questionable.
One option suggested by the task force is a transition to the Automatic IRA model, which would institute automatic payroll deductions in an individual’s paycheck. For maximum effectiveness, this would require mandatory participation by employers as well as automatic enrollment of employees.
Wilson, however, said instituting any sort of mandate for employers through the legislature would be a tall order.
“It seems hard to visualize that the legislature in Wyoming would mandate every employer to take money out of their paychecks to send to the state,” Wilson said. “That would be quite a lift. It’s one of those things that would really be good for a lot of people, but it’s hard to visualize citizens who would appreciate being taken care of that well.”
Meanwhile, programs similar to the federal government’s Social Security system — which withholds money from people’s paychecks each month and pools it, to be expended later — have been floated as options as well. However, start-up costs could be significant, even if the legislature were to pursue options like opening up the Wyoming Retirement System — which administers the state’s pension system — to private employers.
While there are numerous options for private companies to offer retirement plans outside of a public system, the task force concluded that one of the primary reasons for the savings gap is a lack of savings opportunities in the workplace. According to the December report, nearly 36 percent of all jobs in Wyoming offer no means to save for retirement at work. An additional 73 percent of employers in Wyoming do not provide employees access to a retirement vehicle — which research has shown makes individuals 15 times more likely to save.
“If you can’t save at work, you’re not going to save,” AARP Wyoming Executive Director Sam Shumway said. “So how do you create incentives for them or make it easy for them to offer retirement savings plans? That’s the big question.”
Nationally, public opinion has shown that an “overwhelming percentage” of American private sector workers support any sort of program to encourage savings. According to an AARP study conducted in 2017, 84 percent of Americans “strongly or somewhat agree” with legislation allowing workers “to save their own money for retirement.”
Whether the private sector would be able to make that leap — which seven states have already managed to do — is questionable. In a survey conducted by the Department of Workforce Services for the purpose of the task force’s report, 71.4 percent of private sector respondents were most concerned about the cost of such a plan. Most of the employers who responded — 55 percent — said they do not ever plan to offer a retirement savings plan while many more — 42 percent — said they do not have the information and tools they need to set up a retirement plan for employees.
“A pension plan needs to have required contributions and required participation, so the costs, risks and benefits are shared in an equitable manner,” said the system’s administrator, Ruth Ryerson. “It seems that would be a big change for private sector employers and employees.”
A look at the balance sheet
Retirement is expensive, particularly as the cost of health care in America continues to rise. According to a 2018 report by the nonpartisan National Bureau of Economic Research, the average individual will incur roughly $122,000 in out-of-pocket medical costs past the age of 70 excluding low-income individuals covered by Medicaid. This equals out to an average of $5,100 in out-of-pocket expenses per year at age 70 — a healthy chunk of one’s annual income on social security — rising steadily in the years after to $29,700 at age 100.
Meanwhile, the average Social Security payment for seniors — roughly $18,000 per year — is nowhere near enough the amount they need to live off, in part due to the cost of health care.
For those who can’t pay for their health care in retirement, the burden is then pushed onto the state. According to the December report to the legislature, 64 percent of all Wyoming nursing home beds are paid for by state and federal dollars at an annual cost of $130 million, with that amount projected to increase to as much as $312 million by 2030.
Other costs to the state, meanwhile, are only anticipated to increase even further, though it’s unclear how much.
“Forty-seven percent of Medicaid spending in Wyoming is for Medicare beneficiaries, or around $273 million,” the report reads. “This will likely rise significantly given the retirement savings gap.”
The key for Wyoming, then, is to ensure the state’s senior citizens retire with enough money to be able to pay for preventative care once they leave the workforce.
“That’s where we started with this,” Shumway said. “We were looking at long-term care, we were looking at nursing homes, we were looking at how people want to retire versus how they’re actually retiring, and that’s a huge dollar amount. It’s a huge obligation. Where that money is going to come from, I don’t know. If we can keep people in their homes, if we can use other support programs, then we can mitigate that liability. But that’s a big task.”
Does the federal government have a role?
With a “silver tsunami” bearing over the United States, there’s the possibility that states like Wyoming will be forced to support the brunt of their weight.
The federal government declined to form a task force to find a comprehensive solution on the issue when pressed by the Government Accountability Office in its 2017 report on senior income insecurity, instead focusing on piecemeal solutions to the problem. These include numerous programs like Social Security and Medicare but also programs like the Pension Benefit Guarantee Corporation and legislation like the Employee Retirement Income Security Act, the Pension Protection Act of 2006 and other incentives in the tax code to “encourage individuals to save for retirement or for employers to provide pensions,” according to a spokesperson for Wyoming Sen. Mike Enzi, who has long focused on the issue of retirement savings.
Enzi’s recent efforts include exploring the concept of Open Multiple Employer Plans, which allow independent contractors and smaller business to join together to share the administrative burdens and responsibilities of managing a retirement plan, and he has promoted efforts to improve the government’s sometimes ineffective $250 million financial literacy education efforts over the past few years.
“Continuing to ensure proper oversight to ensure the federal government is investing its money wisely to promote financial security could play a big role in helping ensure that individuals are prepared for retirement,” Max D’Onofrio, Enzi’s Communications Director, wrote in an email.
To meet the remaining needs, several states have already stepped up on their own terms. Oregon, for example, implemented a public-private partnership to create a retirement savings plan that was essentially free for employers that also allowed employees to “opt out” if they didn’t want to save for retirement.
“But that’s an example,” Shumway said.
Whether that’s the right answer for Wyoming is the discussion that needs to be had.
“I feel like we have two options at this point,” he said. “We can either stick our heads in the sand like it’s going to go away, or we can figure out ways to tackle it. Whether it’s encouraging retirement savings with small businesses and giving them better vehicles to provide their employees options or supporting our seniors with long-term care supports — it’s an economic issue, but it’s also a human issue. People don’t want to go to nursing homes. People don’t want to depend on the state for their supports. If there are ways we can do things differently so people can save more effectively, we need to seriously look at those.”