Better retirement security
The state’s economy would be stronger, and Vermonters would feel more secure financially if we all had retirement nest eggs. According to a 2012 report by the National Institute for Retirement Security, “[l]ess than half of Vermont workers participate in a retirement plan at work.” And those who have defined contribution accounts, the Institute found, the average balance is the lowest in the country—just $19,768.
Creating a publicly administered retirement program for all Vermont residents is just one of the recommendations in A Framework for Progress: Investing in Vermont’s people, infrastructure, and good government, the latest Public Assets report. In the last two years, Illinois, Oregon, Maryland, Connecticut, and California have created publicly managed retirement plans for private sector workers, and half of the states of exploring similar plans.
Contributions to a public retirement fund would be voluntary. But the fund and its investments would be managed by the state, like the state employees’ or retired teachers’ pension funds. Any Vermont resident could join and make deposits through regular payroll deductions. Employers would be allowed—but not required—to match some or all of their employees’ contributions.
People often need outside help to get them to save for the future, and experts have different opinions whether carrots or sticks are better inducements. If Vermonters had an easy and convenient system that encouraged savings for retirement, individuals will be more likely to succeed than if they were left to their own initiative. And large, professionally managed public pension funds generally produce better returns, thanks in part to substantially lower fees, than average workers get from managing their own retirement accounts.
A state-managed Vermont retirement system also would benefit the economy. Another report recently release by the National Institute for Retirement Security, Pensionomics 2016, quantified the economic impact of certain pensions. The study looked at defined benefit pensions, which guarantee a level of regular payments to retirees as long as they live and are now more common among public employees. In Vermont alone, retirees spending their pension benefits resulted in thousands of jobs and hundreds of millions in direct and indirect economic activity, according to the report.
A voluntary, state-managed retirement plan would not provide defined benefits—retirement benefits would depend on the contributions made each individual. But if more Vermonters had adequate retirement savings to spend in their later years, it would add more jobs and help local businesses. And the returns on all of these state-managed investments would be new money coming into Vermont. According to the Pensionomics report, almost two-thirds of the money going into state and local pensions funds between 1993 and 2014 were investment earnings, with the remaining third coming from employee and employer contributions.
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