State Retirement Savings Initiatives A Win-Win Opportunity NCPERS Webinar April 18, 2017 Presented by: Cathie Eitelberg Rocky Joyner

In the Beginning….Our Starting Point

Principles of Retirement Security Stable Contributions Equalize Risk Committed Funding Universal Retirement Plan Coverage Replace Income Efficient and Transparent Governance Qualities of a Sustainable Pension Plan

The Secure Choice Plan Principles of Plan Design Lifetime retirement income Encourage retirement saving Flexibility, portability and preservation Managed by public entities Conservative investment options Limit employer role to enrollment

Evolution of Secure Choice Plans…. Five Years in the Making SCP attracts the attention of California State Senate Leader DeLeon States of Illinois, Connecticut, Massachusetts, California and Maryland continue moving to implementation 2011 2012 2013 2014 2015 NCPERS Develops Secure Choice Pension Plan Model Legislation passes in California U.S. Department of Labor considers safe harbor rules for workforce based payroll-deduction plans California and Connecticut complete feasibility reviews Secure Choice Pension Plan becomes Secure Choice Plan structured as a payroll-deduction-IRA New Jersey and Washington establish “Market Place Plans”

Evolution of Secure Choice Plans…. Five Years in the Making 2016 2017 Congress overturns municipalities regulations Oregon starts its implementation process Illinois starts its implementation process Congressional action pending on state regulations 2016 Maryland passes enabling legislation DOL issues safe-harbor rules for payroll-deduction IRA plans applicable to states and large municipalities

State Actions Six states have taken steps to establish retirement account programs California Connecticut Illinois Maryland Massachusetts Oregon

State Actions Two states are setting up marketplace websites to facilitate retirement savings New Jersey Washington

Plans With Enacted Legislation CA CT IL MD NJ OR WA Program Type Payroll IRA Default to Traditional Payroll Roth, survey on traditional Roth Exchange, includes ERISA plans Default to Roth Exchange, includes ERISA plans Covered Employers >=5 EEs >=25 EEs >=10 EEs (30 hours) <100 EEs N/A Workplace Based Yes No Independent Analysis Auto Features (3%) (6% recommended) (5%) Included Investments TDFs / Pooled Savings TBD TDFs Broad range TDFs / Balanced TDFs / Capital Preservation Current Status Signed into law RFP to be issued In process Vendor selected, implementation in process Launched

Will Building a Better Base for Retirement Have Other Rewards? Consider the following Half of all full-time employees are saving nothing for retirement. If these employees retire at age 65 with only Social Security, many will fall below eligibility limit for low-income social services. They will be potentially eligible for various social subsidies including housing, food, transportation and Medicaid. Of these Medicaid is one of the fastest growing segments of a state’s budget. If a state were to implement an SCP-type retirement program and some modest number of employees availed themselves of it, what might the impact be on Medicaid expenditures?

Billions Potentially Saved on Medicaid Nationwide

States Could Save Big States could achieve meaningful Medicaid savings by creating a work-based retirement savings plan for their private sector residents who currently are not saving. Key considerations: Drive participation Implement unique designs Reduce administrative burdens Ensure clear, friendly communications For a mid-sized state this could include over 50,000 employers and 500,000 employees. For California, the potential number of participants is almost 7 million.

Estimated Medicaid Savings by State

How did we get to the numbers Methodology 1. Develop the set of full-time workers who are not currently saving For each state, we collected age and salary information on all workers who were not saving for retirement. Eliminated those under age 22 and those with less than $20,000 in annual salary as assumed to be part-time employees. Estimated Social Security income as 36% of salary. 2. Estimated Medicaid per capita cost per state. Develop an average cost per Medicaid enrollee. Estimate the state portion using Health and Human resource data Use Kaiser Family Foundation data to separate healthy over age 65 Medicaid enrollees from families and disabled enrollees.

How did we get to the numbers Methodology 3. Estimate 10-year potential Medicaid savings by state Assume a gradual impact on currently vulnerable households as SCP savings will take time to accumulate. Estimated savings start at 1% in year one for workers aged 64 and increase 1% a year to 5% for workers currently age 60. Over time the individual accounts will grow and the potential for savings on state Medicaid expenditures increases exponentially. We have not projected savings beyond 10 years due to potential changes in the Medicaid program.

Increased Retirement Income is Good for All Retirement income allows retirees to remain an active part of society. This income has economic ripples that go beyond the individual and creates an impact that totals 2 to 3 times the amount of payment. Reducing reliance on social welfare programs frees up capital for other needed public projects. SCP-type programs can make the state tax dollar go further. State Retirement Savings Initiatives A Win-Win Opportunity for All