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Bill Sarno
CTLatinoNews.com
Currently, more than 600,000 state residents, including about 62 percent of Latinos compared to 38 percent of whites, do not have access to a retirement savings vehicle at their place of employment, according to statistics from Connecticut AARP, one of the chief advocates for HB 5591bill, which is winding its way through the state’s legislature.
According to Martin Cabrera Jr., chief executive officer of Cabrera Capital Markets, in his testimony for HB 5591 at a recent legislative public hearing, this amounts to roughly 94,000 Hispanics in Connecticut without payroll deduction plans at work.
The employment-based voluntary retirement savings measure could substantially brighten the so-called golden years for hundreds of thousands of Connecticut residents, including most Latinos who now have little or no retirement savings.
The proposed Retirement Security Act (House Bill 5591), which has strong backing in and out of the legislature, would give employees at companies with at least five employees that have no retirement savings program the option to participate in a state-organized payroll-deduction program This measure, according to the bill’s advocates, carries no cost to the state or employers and would help avert what could become a long term strain on the state’s economy and social programs.
Moreover, there is “the startling fact that the typical household of color has nothing saved in a retirement account,” said Cabrera, whose investment firm is based in Chicago.
Four out of five Latinos, compared to one out of two white residents, have less than $10,000 in retirement savings, and worse yet, 69 percent have zero savings, according to figures from AARP
Social Security payments provide more than half of family income for almost half of all seniors and almost all the family income for about a quarter of seniors, according to the AARP Public Policy Institute.
The bottom line is that many residents, especially Latinos, face an old age subsisting mostly on Social Security, which in Connecticut averages about $15,000 a year, that may not meet all their needs.
Middle class households will not be unable to afford food, medicine and utilities,” warned Mysiewicz Gill, AARP Sr. Legislative Representative, testifying for HB 5591 before the legislatures Black and Puerto Rican Caucus in March.
For the state’s growing Latino population, avoiding a potential human and financial crisis is a two-fold challenge. There has to be an easy way to easily sock away money for retirement and there has to be a learning process to overcome the Latino tendency not to save for old age, even though their life expectancy his higher than for non-Hispanics, according to the Centers for Disease Control.
AARP, in particular, has been addressing the education issues for several years, while state leaders are working to create the appropriate mechanism for saving, devising a scheme that would not financially burden the state or employers.
Over the past year, there have been more than 40 sessions focusing on the why and how of retirement savings and they will continue regardless of what happens to HB 5591, said John Erlingheuser, state advocacy director for Connecticut AARP.
The Retirement Security Act is the outcome a study conducted in 2015 by the state’s Retirement Security Board, which includes Democrats, Republicans, and representatives of various interest groups and key stakeholders. This board also will provide oversight for the new retirement plan.
Despite budget wrangling dominating the three-month 2016 legislative session, the bill’s advocates are cautiously optimistic it will pass by the May 4 adjournment.
So far, HB 5591, has the approval of the legislature’s Labor and Public Employees joint committee and has been sent to the General Assembly where it has the support of House Majority Leader Joe Aresimowicz and Senate President Martin Looney, a primary sponsor of the bill.
The bill also has widespread support among Latino legislators. The co-sponsors included Democratic state representatives Edwin Vargas of Hartford, Ezequiel Santiago of Bridgeport, Robert Sanchez of New Britain and Juan Candelaria of New Haven. Vargas also is a member of the labor committee, which approved HB 5591 in an 8-5 party line vote.
In addition to AARP, several organizations and individuals testified to the labor committee on the need for this act. These include state Comptroller Kevin Lembo and the American Retirement Association. Lembo was scheduled to speak to the Latino and Puerto Rico Affairs Commission about the need for this bill, said Werner Oyanadel, the commission’s executive director.
Although the median age of Hispanics in Connecticut, 27, is 15 years lower than for non-Hispanic whites, there already are thousands of Spanish-speaking elderly, many with limited resources that require assistance from public programs and social service agencies.
One such agency is Meriden’s Casa Boricua which has developed a variety of services for senior citizens with about four dozen mostly Spanish-speaking elderly participating.
Almost all those who regularly attend the Casa Boricua’s senior center are living on Social Security. These monthly payments often do not meet all the elderly Latinos needs and many survive with the help of their families, live in public senior housing and find other means. There are about 30 Latinos who come to Casa de Boricua every weekday to get a balanced meal provided through government programs.
While HB 5591 has strong proponents on the Democratic side of the aisle, the majority in the House and the Senate, the bill has been opposed by Republicans and by organizations such as the Connecticut Business and Industry Association and representatives of the insurance and financial service sectors.
Opposition has centered on the expectation that this program would send an anti-business message, could create a financial risk for the state and is not needed due to the existence of retirement savings options already existing in the private marketplace.
Erlingheuser noted that private investment firms have had little success in attracting retirement savings from individual investors. AARP found that only 4.6 percent of people get IRAs on their own as compared to 71.5 percent who do so through their employers.
Under HB 5591, the money set aside will be managed by private sector firms, who will be chosen through a bidding process overseen by the state and who will ante up the setup costs to spare the state any additional outlays, Erlingheuser said.
In addition, the retirement accounts will be portable, meaning that the employee can continue savings in the event of a change of employer.
An AARP survey last year found that 60 percent of small businesses support this approach. Moreover, another poll conducted among registered voters age 35 to 64, showed more than 60 percent in favor of a retirement security plan with this support cutting across all parts of the political spectrum.
The bill in its current state has undergone some revisions to address some issues raised during the legislative discussion. For example, the default contribution, the amount to be deducted if an employee does not stipulate a rate, has been reduced to 3 percent instead of 6 percent.
In addition, the bill’s backers have agreed to utilize a Roth IRA, rather than a traditional IRA, because rather than creating a tax break for money allocated to this savings vehicle, the tax advantage comes when money is withdrawn during retirement.
This was important in the current budget climate, Erlingheuser explained, because some estimates said the deferred state revenue could amount to $10 million.
The AARP representative added that the firm that wins the bid to administer the plan, not the state, would have to front the money for the start up. It would be able to recover this money, he said, in five or six years, from fees applied to account holders.
Several studies have found that even among those that do have retirement savings plans at work are less inclined to understand and participate. Historically, Latinos tend to channel their earnings into more immediate concerns such as their children’s education and paying off debts.
This tendency to give a low priority to nest egg accumulation is being addressed by Connecticut AARP, bolstered by a growing cadre of Spanish-speaking volunteers, at information meetings and through literature, some of which is in Spanish.
AARP’s outreach focuses on the need to save for retirement, and also stresses the advisability of using opportunities such as 401(k) plans that some employers already offer, some with matching company contributions.
One bit of good news for retirement savings is that Hispanic Americans plan to work to age 66, as compared to the average retirement age of 62, and many intend to work part-time in retirement, according to Jamie Hopkins in a 2014 article column on personal finance that appeared last year in Forbes magazine.
This means that many Hispanics will delay tapping into their Social Security and have more time to accumulate retirement savings, Hopkins projects.
On the other hand, the longer life expectancy for Hispanics men and women also predicts a longer retirement period. How this all plays out in the Latino community, however, will hinge on a cultural shift on saving for old age, and having mechanisms available to make the process attractive and convenient.
