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June 2012, by Nari Rhee
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1. Workplace retirement plan access in California's private sector is inadequate—and declining.
- Based on data from the three-year period 2008-2010, only 45 percent of private sector workers age 25-64 in California work for an employer who sponsored a retirement plan—even less than the US average of 53 percent.
- Only 37 percent of employed private sector workers in California actually participate in an employer-sponsored retirement plan.
- There has been a downward trend in workplace retirement plan coverage in California since 1998-2000, when 50 percent of private sector workers had access.
- Access is worst among low-wage workers (22 percent in the bottom quartile); employees of small firms with less than 100 employees (25 percent); and Latinos (32 percent).
2. Over six million working Californians have fallen into the private sector pension gap.
- 6.3 million private sector workers in California work for an employer that does not sponsor a retirement plan.
- The median age in this group is 40 years; four out of five work full time.
- The median annual earnings of workers who do not have access to a workplace retirement plan are just under $26,000—half that of workers who do have access.
- Over two-thirds (68 percent) work for small firms with less than 100 employees; and almost one-fifth (18 percent) work for very large firms with 1,000 or more employees.
- A disproportionately large majority (64 percent) of workers without access to a workplace retirement plan are people of color, with Latinos making up the largest single share (46 percent) of the total.
3. Lacking adequate pension access, California private sector workers face serious economic hardship in retirement.
- The typical worker who lacks access to an employer-sponsored retirement plan will receive only 50 to 60 percent of the amount required to avoid serious economic hardship in old age from Social Security.
- An earlier study found that nearly half (47 percent) of California workers—public and private—are currently on track to retire with incomes below 200 percent of federal poverty level (i.e., about $22,000 a year), a widely accepted threshold for serious economic hardship.
- Each generation is projected to retire poorer than the last: 55 percent of young workers age 25-44 have projected retirement incomes below 200 percent of poverty level, compared to 39 percent of workers age 45-54 and 33 percent of workers age 55-64.
4. A publicly sponsored retirement savings program can close the pension gap and help workers build adequate and secure retirement income.
- Automatic enrollment (with employee-level opt out) and automatic payroll deduction, combined with portability across jobs, would help millions of workers save easily and consistently throughout their careers.
- A large plan in which professionals manage the pooled retirement savings of millions of workers can be more efficient and less costly compared to currently available IRAs and 401(k)s, and offer better insurance against investment risk—important factors for workers with modest incomes.
- With a large risk pool, the plan can offer attractively priced life annuities compared to the individual market and thus offer secure monthly income throughout a worker's retirement.