EXPLAINED: The nation’s retirement savings crisis, in two charts

February 26

One look at the chart above says all you need to know about the costs of retirement for public workers in San Jose, California’s third-largest city:

They are soaring.

The causes of the rising costs are no mystery. Pensions are generous in San Jose. Police officers and firefighters can retire after 30 years on the job and receive 90 percent of their pay for life. Other city workers can retire with 75 percent pay after 30 years. Both groups are entitled to 3 percent cost-of-living raises every year, and it is not unusual for retirees to earn more than when they working.

The overwhelming costs have forced the city to cut library hours, defer road repairs and lay off workers. Alarmed, a large majority of San Jose voters have ratified a plan to cut public worker pensions, but implementation is being held up after a court ruling knocked out several key provisions. Meanwhile, a statewide ballot measure to make it easier for local officials to slash pensions is being pushed by San Jose Mayor Chuck Reed, a Democrat. But it is caught in a legal battle that might prevent it from going before voters until 2016, if at all.

Some say the struggles in San Jose are a harbinger of a larger problem caused by gold-plated pensions.

But a more serious, if less discussed, problem is that 55 percent of California private-sector workers have no retirement coverage at all on the job. Again, cost is the issue. Many employers cannot afford to provide retirement plans.  Workers can’t afford to save. And cost-conscious governments — with huge public pension costs in mind -- are leery about filling the void.

President Obama has proposed MyRas, or portable savings accounts targeted to the one-third of Americans who have no access to retirement accounts on the job. The plan is a scaled-down version of other ideas Obama has advocated to bolster retirement security. But given its modest terms, even the plan’s most ardent backers say it is, at best, a beginning.

In 2012, California lawmakers passed more ambitious legislation that would require employers who do not offer alternatives to take part in a state-run plan to help workers save for their golden years. The state would guarantee a minimum level of return backed by insurance should market returns fall below projections. At retirement, it would be converted to an annuity paying benefits for life.

But California Secure Choice remains under study, and there are concerns about its costs. Meanwhile, the problem only festers as a new generation inches toward retirement with little in the bank.


“The fact is we need retirement security for all,” said Karen Friedman, executive vice president for the nonprofit Pension Rights Center. “While ultimately there is a need for a federal solution, the states offer the best hope for developing and implementing innovative retirement income expansion.”

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