Speech by Karen Friedman to the Governor’s Task Force to Ensure Retirement Security for All Marylanders (August 7, 2014)

Speech by Karen Friedman to the Governor’s Task Force to Ensure Retirement Security for All Marylanders (August 7, 2014)


My name is Karen Friedman, and I am the executive vice president and policy director of the Pension Rights Center, a national consumer organization working exclusively to protect and promote the retirement rights of workers, retirees, and their families.

Thank you, Chairwoman Townsend for inviting me to speak today at the very first meeting of the Governor’s Task Force to Ensure Retirement Security for All MarylandersYou are doing such important work and I’m honored to be a part of it.

My statement today will focus on two areas. First, I’m going to talk about the enormous and growing retirement income crisis that is affecting millions of people nationwide – as well as in this great state of Maryland. I will then spend the last few minutes of my comments discussing both state-based and national solutions. 

So, how big is the retirement income problem? 

According to a recent Gallup poll, not having enough money for retirement was the number one financial concern of Americans, taking precedence over worries about paying for their medical bills, paying for the kids’ college education, and being able to pay for the rent or mortgage. 

These anxieties become even more understandable when you look at the statistics. Currently, millions of people are facing a bleak retirement.  Nationally, half of all private-sector workers do not have a pension or retirement savings plan to supplement Social Security, and this has been a stubborn fact for more than a quarter of a century.

Too many employers who sponsor defined benefit pension plans that provide lifetime, guaranteed income are freezing, terminating, and otherwise cutting back those plans and replacing them with less secure 401(k) plans. 

Thirty years ago, one out of two private-sector workers who had plans participated in defined benefit plans. Now that figure is closer to one in five. 

And 401(k) plans have left most workers with insufficient assets for retirement.

  • According to the Federal Reserve Board’s 2010 Survey of Consumer Finances, half of all households that have 401(k)-type plans had less than $45,000 in their accounts. 
  • For those approaching retirement, the median account balance was just about $100,000 – not nearly enough to last throughout retirement.

Another study shows that, among working families closest to retirement age, 40 percent have no retirement savings, and another 30 percent have enough to provide $330 per month or less to spend on retirement.

So it’s not surprising that a study by the Center for Retirement Research at Boston College shows that 53 percent of households are at risk of not having enough to maintain their living standards in retirement. That number is expected to rise in coming years. 

If you translate the Center for Retirement Research’s Risk Index a different way, you’ll see that we have a Retirement Income Deficit (RID) in this country of a whopping $6.6 trillion. 

The RID is the gap between what people have saved as of today and what they would need to have currently saved to maintain their standard of living in retirement. This Retirement Income Deficit is not just a national problem. Without action, millions of Maryland’s residents also face their own personal Retirement Income Deficit.  

According to the Schwartz Center for Economic Policy Analysis at the New School, in 2010, 41 percent of working-age Maryland residents were not covered by an employer-sponsored retirement plan.  Between 2000 and 2010, there was also a steep decline in the rate of sponsorship of retirement plans by their employers (going from 67% to 59%). 

The study goes on to show that declining sponsorship of retirement plans leads to less retirement income security for workers in Maryland, and it also has immediate implications for the financial preparedness of the state’s senior citizens.

Poorer Maryland residents continue to be financially insecure as they enter retirement-age years. In fact, the study shows that 41 percent of near-retirement households in Maryland will have to subsist almost exclusively on Social Security income, or not retire at all – and that’s higher than the national average, where Social Security comprises 90 percent or more of income for 22 percent of aged beneficiary couples.

Similar data has been reported by the National Institute on Retirement Security (NIRS), which compiled a Financial Scorecard, evaluating how today’s Maryland retirees are doing and how future retirees in Maryland will fare. (Since Diane is on the phone, I hope she will speak to this after my statement).

According to NIRS, Maryland has a mixed record on the financial preparedness of retirees. Its score card shows that the average retirement account in the state was just over $32,000, and these small amounts saved are hardly enough to pay for Maryland’s high housing costs and higher retiree medical costs. Maryland also has high unemployment rates among older adults.

So, the question then becomes, how do we address this problem? 

As a starting point, the Pension Rights Center believes that any new private system, either nationally or in Maryland, should build on top of an unreduced Social Security system. Social Security – which only averages about $15,000 for a typical retiree – must be maintained and strengthened, not cut, because it is doing an unparalleled job of providing a basic foundation of income for retirees.

We hope this task force weighs in on the importance of this issue as well. 

The Pension Rights Center supports a range of both state-based and national approaches to increase pension coverage. To facilitate reform in this area, we created principles that we think should underlie any system that supplements Social Security. 

We ask that this task force take the following principles into account when studying and designing a new system that works for Maryland. You can use these principles to evaluate any of the plans you recommend.

  1. To the extent possible, every system should be universal, meaning that all workers should be covered by the plan unless they’re participating in other employer-based plans.  
  2. A new plan should provide security, meaning that retirees should be able to rely on a steady stream of income 
  3. A plan should be adequate, meaning that in combination with Social Security, retirees should be able to maintain a reasonable standard of living in retirement. 


In addition, to meet these goals, contributions should be made by both employers and employees; contributions should be pooled and professionally managed to minimize costs and financial risks; and benefits should be annuitized and paid out over the lifetime of retirees and surviving spouses. 

United States Senator Tom Harkin, the Chairman of the Senate Health, Education, Labor, and Pensions Committee, introduced a bill that meets our principles, and I recommend you look at as a model. 

His USA Retirement Funds bill would create a new system of privately-run retirement funds that are pooled and professionally invested, with money locked in until retirement. They pay out a stream of monthly payments that cannot be outlived. Investment and life expectancy risks are shared by all participating workers and retirees, improving on 401(k) plans where the risks are borne by each individual.

In addition, new multiple-employer plan options are being considered nationally to pool the resources of small employers. 

Maryland is part of a growing movement exploring how states can play an important role in expanding coverage for private sector workers. We applaud Senator Rosapepe for being the champion of the Maryland Secure Choice Retirement Savings Trust. We believe creating a retirement savings plan in the workplace into which employees are automatically enrolled (unless they opt out) is an important step forward.  

The Maryland Secure Choice mirrors, in many ways, the California Secure Choice Retirement Savings Trust Act, which lays the groundwork for a state-administered retirement savings plan. These approaches meet some of some of the principles I mentioned. For instance, the money, rather than being individually invested would be pooled and professionally invested. The money could be annuitized, and there is also a modest guarantee. 

The California law requires that a feasibility study be done before the plan is implemented and my understanding is that they are making good progress toward that goal.

Two years ago, Massachusetts also enacted a new law, using its retirement system to administer a new defined contribution plan for employees of small non-profit organizations in the Commonwealth. The retirement plan would be a tax-qualified defined contribution arrangement, with various investment options available to employees. Contributions could be made by workers, their employers, or both.

Also, Connecticut just passed a bill that dedicates $400,000 toward the establishment of a Connecticut Retirement Security Board, which will conduct a market feasibility study and implementation plan for a new state-administered savings plan similar to the California model.

Lastly, there are a variety of efforts being explored in Oregon, Minnesota, Vermont, Washington state, and Colorado, among others, as states are beginning to realize they can use their significant negotiating power and economies of scale to lower the costs of retirement savings for their citizens.

Because these plans would operate separately from the state’s own retirement system that covers state employees, they can be structured not to add to state budget deficits or add to liabilities of state pension systems.

In its latest “Pensionomics” study, NIRS shows that pensions and retirement savings are not just good for individual retirees but they are good for the economy. 

According to NIRS, pensions save the nation $7.9 billion in public assistance, and help prevent 4.7 million households from falling into poverty or near poverty. When retirees do well, they can continue buying goods and services in the economy.

In addition, according to Generations United, more than six million children live in what they call “grandfamilies,” households headed by grandparents and other relatives. As more and more families are still struggling to keep jobs, to keep their kids in school, grandparents often help out with expenses. So retirement income is good for families.

Unfortunately, we seem to be going the opposite direction. 

The most recent issue of Harper’s has, as its feature story, “The End of Retirement,” which details heart-breaking stories of older Americans who live in vans and campers in order to travel from city to city to find minimum wage jobs, because they can’t make ends meet.

This turns the American dream of a hard-earned retirement into an American nightmare. 

I commend this task force for taking the lead in finding solutions – to ensure that Maryland residents will be able to retire with adequate income and dignity. I am happy to answer any questions you have, and the Pension Rights Center would be honored to help in any way to help facilitate your process of developing recommendations. 

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