New Jersey, indeed the nation, increasingly faces a retirement savings crisis. Many New Jersey workers don’t have a way to save for retirement through their job. They are not putting enough money away for the future. More than half of New Jersey private sector workers have no employer-sponsored retirement savings. In fact, New Jersey has some of the lowest rates of access and participation in retirement savings in the nation. According to the Pew Trust, New Jersey ranks 42nd out of 50 in access and 40th in participation. We share this dubious distinction with states like South Carolina and Mississippi. In the Northeast, New Jersey ranks dead last.
In New Jersey, most private sector workers are employed by a small business and most – 1.7 million workers - have no employer-sponsored retirement savings. In New Jersey:
• The average working family has $3,000 in retirement savings;
• 40% of households headed by a 45 to 54-year-old have no savings at all; and
• Social Security pays New Jersey residents around $1,377 a month.
Moreover, women are far more likely than men to face financial hardship in retirement. For women age 65 and older, the data indicate that their typical income is 25 percent lower than men. As men and women age, men’s income advantage widens to 44 percent by age 80 and older. Consequently, women are 80 percent more likely than men to be impoverished at age 65 and older, while women age 75 to 79 are three times more likely to fall below the poverty level as compared to men
The consequences of growing savings shortfalls not only impact the quality of life for our residents and have a disproportionate impact on working women in particular, but it is detrimental to the entire economy.
Without retirement savings, a large share of households may be forced to significantly reduce consumption in retirement and will have to rely heavily on their families, charities, and the government for help to make ends meet. Rather than staying in control of their economic lives, thousands may be forced to become partially dependent on others, including government programs, for financial support and to accept a standard of living significantly below that which they had envisioned.
Further, when incumbent workers can’t retire because of paltry savings, employers are hesitant to make investments in productivity, like new technologies. Nearly 58 percent of the New Jersey workforce is aged 45 and over, significantly higher than the national average. At the same time, from 2000 to 2013, the number of 22-to-34-year-olds living in New Jersey fell by 2.3 percent, according to Census data, even while the number of people in this age bracket increased by 6.8 percent nationally during the same time frame. Indeed, the labor participation rate among prime age working men and women remains at historic lows. The result: 2015 marked the lowest productivity gain since 1980.
We know that employers play a vital role in helping employees save and plan for retirement but many small businesses are unable to sponsor a retirement savings plan. The best evidence suggests that small businesses do not sponsor retirement savings plans because of administrative burdens, fiduciary and legal issues, an absence of in-house expertise, costs and fees, employee turnover and/or a high percentage of part-time workers, the uncertainly of the company’s future and higher priorities.
In fact, The U.S. Department of Labor states that the start-up costs for a small business are three times higher than a large business and administrative costs are twice as high. Yet, it’s demonstrated that if a worker has access to a retirement plan, he or she will be 15 times more likely to save for retirement.
Employers have a stake in helping workers save for retirement. Most small-business owners - 94 percent - who offer a retirement savings plan to employees recognize it supports recruitment and retention
But while every employer is a business, not every business is an employer. Why should a business, particularly a small business, care that workers will struggle after retirement? Indeed, many small-business owners believe that workers do not value or want retirement savings accounts – in other words, workers are satisfied just to have a job. And the reality is that many, if not most small businesses, do not compete for talent (although they report that they have trouble finding “skilled” people to work for them.). They compete on price; and sponsoring a retirement plan is an unnecessary cost, even when tax deductions offset the cost.
But nearly 70% of Gross National Product is based on consumer spending; in other words, personal consumption drives profits. As America’s population ages, the economic well-being of retirees will be increasingly important to the overall health of the national economy as they spend their money in the local economy. So, it could be that helping workers save money now means more profit later. But given hat less than 50% of small businesses successfully make it past 4 years of operation, we cannot expect the small business owner to help solve one of the greatest economic threats facing the country.