In New York City, three-fifths of private-sector employees don’t have employer-based retirement plans. At companies with fewer than 10 employees, that figure jumps to nearly 90 percent. In response to this problem, NYC Comptroller Scott Stringer recently released the “NYC Nest Egg Plan,” to address what he says could be a burden for future taxpayers, who would be called upon to support a growing population of low-income seniors.
“Unless we act now, what should be the golden years in America’s largest City may well become the darkest years for too many people,” Stringer said in a statement announcing the plan.
It is estimated that by 2040, New York City’s 65-and-older population will have grown by 1.4 million, or 40.7 percent, since 2010.
For those employers who already provide a retirement plan, the NYC Nest Egg proposal requires no action. But for those who don’t, the plan provides a multi-pronged approach.
First, the NYC 401(k) marketplace, a new, voluntary exchange, which would offer employers a choice of screened, competitive 401(k) and other retirement plans.
Second, one of the options in the NYC 401(k) Marketplace would be a new “Empire City 401(k),” which would be a first-in-the-nation city-sponsored retirement savings plan for private employers. The plan takes advantage of recent changes in federal law that allow multiple, unaffiliated employers to join a single, publicly sponsored 401(k) plan.
By offering competition, the Empire City 401(k) would hopefully encourage private retirement plans seeking to operate in the marketplace to offer plans that compare favorably. Sponsoring a plan, even if offered through the marketplace, still means a significant administrative burden and legal responsibility for small businesses. The city-sponsored option would ideally reduce costs by sharing those burdens among all participating businesses.
Lastly, if private-sector employers choose to neither shop through the exchange or select a plan through another method, they would be required to automatically enroll employees in the NYC Roth IRA. Research shows that automatic enrollment in retirement savings accounts vastly improves participation, so employers would be required to automatically enroll eligible employees, but employees would have the option to opt-out if they so choose.
The NYC Nest Egg plan would be overseen by an independent board of experts whose responsibility would be to protect the best interests of participants. The board would be screen private plans for listing in the NYC 401(k) Marketplace, as well as periodically conduct competitive bidding to select asset management firms to manage retirement savings under the new Empire City 401(k) plan.
The criteria the board will use to select marketplace plans asset managers for the Empire City 401(k) are not yet finalized. The comptroller’s office says their goal is to limit investment options only to low-cost index funds or target-date funds, which allow future retirees to choose a future retirement date and then have their retirement savings invested appropriately to maximize returns early but minimize risk as the retirement date approaches.
The comptroller’s office could not say at this point whether approved plans or asset managers would be required to show they are not causing the displacement of NYC residents and small businesses.
To design the NYC Nest Egg Plan, the comptroller worked over the past 19 months with a nine-member study group, featuring academics from a wide ideological spectrum from Harvard, Stanford, Columbia, Boston College and The New School for Social Research.
The study group also authored a separate analysis of options to increase the retirement security of NYC workers. The group had some differences of opinion regarding the best set of options, some including a mandate, some including only public or only private plan options. A majority supported the three-pronged approach taken by the NYC Nest Egg Plan.
While exact details for broader engagement are not yet available, now that the NYC Nest Egg Plan is public, the comptroller’s office says there will be ample opportunity for everyone to have input on the plan through “a very public process.”
Oscar is editor of Next City. Before that, he was a Next City contributing writer and 2015-2016 Equitable Cities Fellow. Since 2011, Oscar has covered community development finance, community banking, impact investing, equitable and inclusive economies, affordable housing, fair housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.