Commentary: Philly can be part of the solution in creating retirement security

By Alan Butkovitz,

Olivia S. Mitchell,

and Bill Johnston-Walsh

Retirement policy in the United States has traditionally been designed at the national level. But our nation's retirement security system has changed profoundly in recent decades.

Social Security faces cash flow shortfalls within 18 years, and the rise of 401(k) plans and the decline of defined benefit pensions, as well as gains in life expectancy, mean that workers must do far more to save for retirement on their own.

As well, nontraditional work arrangements are increasingly shifting responsibility for retirement planning and saving to individuals and their families. As a result, the United States is faced with the pressing problem of an aging workforce that hasn't saved enough to retire comfortably.

Having a growing number of seniors with too little retirement saving poses a risk not only to families, but also to our city's economy. For this reason, the time has come to design a local approach to help workers build retirement security. Toward that end, Philadelphia is on the verge of becoming one of three cities nationally that is designing solutions to help our workforce save more and retire more comfortably.

The facts are evident as to why Philadelphia must lead these efforts, including:

More than half (54 percent) of employees in Philadelphia lack access to a retirement plan through their employers.

Preliminary survey data suggest that nearly two-thirds of Philadelphia's small businesses offer no retirement benefits.

Thirty-three percent of retired seniors in Philadelphia live in poverty.

More than half of Philadelphia's senior households earn less than $28,750 a year, which is the threshold for meeting basic needs without relying on public assistance.

Creative solutions to the retirement security problem have been emerging in several states as well as a few major cities. These proposals have centered on creating state- or city-sponsored, tax-favored, retirement savings plans that businesses can join at low cost and low risk. These plans are designed to be attractive to small employers and appeal to their employees, which would boost Philadelphia's overall ability to become more attractive for small business.

All of the plans under scrutiny have the same objectives: to make it easier for businesses to offer retirement saving plans to employees and to increase the number of citizens saving for retirement.

The impact of the various proposals is being thoroughly examined through the joint efforts of the city controller, who has taken the lead to engage our city's local government; Wharton's Pension Research Council; and the AARP.

These three entities sponsored a retirement security symposium this week at University of Pennsylvania. Experts and stakeholders at the federal, state, and local levels were on hand to help people better understand retirement security in our city and outline the key policy options. This was a great opportunity to learn what might work in Philadelphia and what is being achieved in other parts of the country.

It's appropriate that this gathering took place during National Save for Retirement Week, which denotes congressional interest in raising public awareness on the need to save for retirement, increase personal financial literacy, and engage Americans throughout their lifetimes about ways to achieve and maintain retirement security.

While our nation continues to identify Social Security as the bedrock of retirement income for older Americans, this system was never intended by Congress to be the sole source of retirement income. In Philadelphia, leaders from the public and private sector are focusing attention this week on ways to design retirement savings plans for the nonpensioned.

We support the efforts of Philadelphia to create a new, efficient, and cost-effective model that encourages employers to offer retirement benefits for their nonpensioned workforces.

Alan Butkovitz is Philadelphia city controller. alan.butkovitz@phila.gov

Olivia S. Mitchell is a professor of business economics and insurance/risk management at the Wharton School of the University of Pennsylvania. mitchelo@wharton.upenn.edu

Bill Johnston-Walsh is AARP Pennsylvania state director. wjohnstonwalsh@aarp.org