The Politics and Policy of UVRAs in West Virginia

Shriver Center on Poverty and Law Universal Voluntary Retirement Accounts Webinar December 14, 2009 Ted Boettner, Executive Director West Virginia Center on Budget and Policy www.wvpolicy.org

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UVRAs in West Virginia: A Brief History • Legislation introduced in 2007, 2008, and 2009. – Senate Bill 417 (2009): Establishing Voluntary Employee Accounts Program (VERA) • http://www.legis.state.wv.us/Bill_Status/bills_history.cfm?year=2009&sessiontype=RS • 2007: Dean Baker participated in a conference call with legislators and the State Treasure's Office and presented to the Joint Pensions Committee. • 2008: Passed a Study Resolution, the State Treasurer’s Office established a UVRA Working Group, drafted new legislation, and we presented to the Joint Pensions Committee. • 2009: During the 2009 Legislative Session, SB 25 passed out of Senate Pensions Committee but died in the Senate Finance Committee. 2

Aunt VERA: Voluntary Employee Retirement Accounts 3

Main Components of VERA

• • • • • Only small businesses can participate, those with less than 100 employees. Includes 401(k) option.

Voluntary Participation, but employers must provide payroll deduction upon request. Fiscal Note: $3 million over 5 years, paid back in full by year 10. Paid for by State Treasurer's Unclaimed Property Fund. 4

VERA Start Up Costs& Participation Estimated Return on Costs in 10 yrs: $1.5 million

Year 2 3 4 5 6 7 8 9 10 Total Fees

Number of Participants Average Account Balance VERA Fund Balance Fees Reimburse State

5,000 $2,000 $10m $10k $5k 10,000 25,000 50,000 60,000 70,000 80,000 90,000 100,000 $5,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $6,000 $50m $50k $25k $150m $300m $360m $150k $300k $360k $75k $150k $180k $420m $420k $210k $480m $480k $240k $540m $540k $270k $600m $600k $300k $2.9m

$1.5m

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Why did VERA Fail in 2009?

• • • • • • American Council of Life Insurers (ACLI) Uncertainty about state liability?

Historic Pension Problems in West Virginia Not enough education about VERA Where is the small business support?

Payroll Deduction IRA vs. 401K 6

Potential Political Factors & Concerns • • • • How successful is your state’s college savings plan? Is your state’s defined benefit pension plan for state employees in good shape?

401(k) plans have lost 30-40 percent in 2008. Often members of legislative pension committee make their living in financial services. 7

Potential Political Factors & Concerns Continued • • • • How many state employees participate in 457 deferred compensation programs? How effective is your State Treasurer (or your equivalent) at persuading members of the Legislature and the Governor? Does your UVRA coalition have enough clout to influence lawmakers? How many states have these programs? 8

Common Misunderstandings

• • • Is the state liable if participants lose money? Voluntary vs. Involuntary participation Is the state going to be selling these plans? 9

Effective Talking Points in WV

• • • • • Over half of West Virginia’s workforce lack a job based pension. Lack of retirement assets is one of the leading causes of poverty among the elderly. Lack of assets can lead to a drain on state resources in the future. Where you work shouldn’t determine whether you can save for retirement. Small businesses face higher costs compared to big businesses. 10

Small Businesses (and small investors) are at a Competitive Disadvantage • • • Small business employees payer higher sales fees and annual fees on their accounts. VERA would charge an estimated 0.2 percent (basis points) per year for administration while typical private sector plans charge an average of 1.32 percent. Example: A worker contributes $1k annually over 35 yrs with a 3.8 percent annual return. • • Scenario 1: VERA participant will accumulate $66, 674 Scenario 2: Typical small investor will accumulate $54,938 11

Resources and Research

• Closing the Retirement Gap: Voluntary Retirement Accounts Offer Solution for Small Investors: http://www.wvpolicy.org/downloads/WVCBP Closing_the_Gap_031709.pdf

• 2009 Testimony on VERA: http://www.wvpolicy.org/downloads/2009session/Te stimonySB417_030609.pdf

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