City Could Help Solve Retirement Crisis
Allowing private sector employees to buy into city’s pension fund has many advantages.
Retirement. That magical time for post-65 Americans when they hang up their uniforms, suits, and name tags, and trade them in for family gatherings, ocean cruises, and long-neglected hobbies. At least that’s the idea. In reality, for the vast majority of Americans, retirement has become a source of fear, anxiety, and sky-high medical bills.
According to a 2018 study by Milwaukee’s own Northwestern Mutual, nearly 1 in 3 Americans has less than $5,000 saved for retirement. 78% are either “somewhat” or “extremely” concerned that they won’t have enough money for retirement. They’re not wrong to feel this way.
Most conventional wisdom has held that $1 million is a reasonable number to retire on. For a current retiree, this would equate to approximately $40,000 per year, adjusted for inflation. For a 32 year-old millennial to retire at age 67, a $1 million nest egg would put them well below the poverty line. Considering that only 1 in 4 Americans has even $200,000 saved for retirement, this is quite alarming indeed.
Without enough money to retire on, what will retirees live off of? Social Security? A recent internal analysis by the Social Security Administration finds that by 2035, there will only be enough money to support 75% of current benefit levels, unless significant changes are made, either to the program, or demographic patterns of the country (i.e. people having more children).
With a problem this large in scope, one might ask, what can the City of Milwaukee, with its limited resources, do to ensure that its residents are able to retire with dignity? One solution: allow all Milwaukee residents to “buy in” to the City’s Employee Retirement System (ERS). While not a panacea, there are several clear benefits to such an approach.
- A more sustainable pension system – The ERS is a relatively safe and well-funded pension system. The most recent year for which data is available (2017) shows the ERS to be 94% funded. Allowing more people to “buy in” to the program can only help its long-term stability.
- Little to no net increase in the City budget – So-called “buy-in” participants would not receive the employer match afforded to City employees, so they would be “cheaper” members to add to the pool. Any increase in administrative costs associated with increased participation could be offset by the influx of cash into the fund combined with the lack of matching contribution.
- An incentive to stay – City residents who buy-in to the ERS would have greater incentive to remain City residents, so they may continue to contribute to the fund. If they decide to move, they would still be entitled to any accrued benefits, but would no longer be able to make new contributions to the fund. This would help stabilize our City’s property tax base.
- A competitive advantage – If private-sector employers in the City of Milwaukee were allowed to join the ERS in exchange for providing a minimum level of employer match to the fund, they could gain a competitive advantage by offering a valuable benefit to employees without incurring the administrative costs of managing the investment fund themselves or paying a third party to manage it.
- A defense against the “Gig Economy” – A recent Gallup poll published in Forbes estimates that some 36% of American workers are members of the so-called “Gig Economy.” This number is only expected to grow in the future. Many of these jobs do not offer health or retirement benefits. Workers who buy in to the ERS, even in the absence of employer match, would clearly be better off than workers with no retirement savings.
Given the benefits mentioned above, it is clearly worth exploring this idea. A feasibility study would be an appropriate first step, and a transition period would likely be necessary to avoid any unnecessary shock to the system. It would be worthwhile to consider whether residents who stand to benefit most from buying in to the system (i.e. younger workers with little or no retirement income) should be allowed entry first.
Since the Milwaukee ERS itself is a product of State law, it is likely a State Law change would be required to allow non-City employees to participate. However, given Governor Tony Evers’ professed support for increased local control, as well as the assumption that any buy-in program would not have an effect on State spending, it certainly has a greater chance of passing the Republican-controlled legislature than many proposals that stand to benefit Milwaukee.
There are sure to be risks involved with this proposal, as with any major policy change, but given the scope of the problem, and the potential benefits, I believe they are risks worth taking.
Justin Bielinski is a candidate for District 8 of the Milwaukee Common Council .