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Undercutting the Underfunding

Martin Sullivan | State Street Corporation

February 08,2018

We all think about that day when we’ll retire: where we’ll live, who we’ll spend our time with and what new interests we’ll pursue.

But the looming question for almost all of us is how will we afford that?

For better or worse, the ultimate responsibility of funding a retirement rests with the individual. It didn’t used to be this way, but a fundamental shift in liability from the employer to the employee parallels the decline of pension plans and the rise of defined contribution plans. And while Americans are living longer and healthier lives, our retirement accounts aren’t keeping pace. The average household has only $12,000 in savings as they near retirement age. Meanwhile, 31 percent of non-retirees report they1 have nothing saved and no pension. Even more disconcerting: 68 million Americans2 don’t even have access to a retirement plan at work. It’s hard to set aside money for the future when there is no plan to invest in.

Even those with pensions aren’t in the clear. For many public pension plans, the assets of the plan are insufficient over a long-term horizon to meet the monthly payment commitments due to their plan participants. Big plans risk coming up short of the eight percent return they’re expecting. When the projections for growth don’t line up with reality, the gaps between worth and liability get even wider.

Working for State Street, these are the concerns and questions that weigh on me. We play an important role in helping our clients—and their participants—prepare for retirement. And we also play a role in creating awareness around the need for retirement savings, the issues faced by retirees and improving public policy.

As a financial services company, we serve as stewards of the capital that people are relying on as they look toward retirement.

In her role at the Oregon State Treasury, former State Street employee Lisa Massena hopes that states can help to close the funding gap. OregonSaves is a state-backed retirement savings program. Similar to a 401(k), this Roth IRA is available at work, the contributions are done by payroll deductions, and automatic enrolment gets people over the hurdle of signing up. One big thing — no employer contributions are required, so smaller employers can offer the program at no risk. The plan can also be used by those who are self-employed or work part-time jobs which, as much of our economy moves into the service industry, a greater percentage of our workforce is likely to have. As the AARP noted3, workers are 15 times more likely to save if their employer provides a payroll deduction savings plan.

While still in its infancy, the program is seeing positive results. In May 2017, the first pilot had 11 employers with 127 enrolled employees. Those 127 employees have already contributed over $30,000, with a 4.7 percent average contribution rate. The second pilot reached 2,000 employees and Lisa is confident they will be able to retain 70-80 percent of enrollment. “Even if you get people in at one percent, it will escalate. For maybe the first time in their lives, people are able to save for the future.”

Several other states, including California, Illinois, Connecticut and Maryland, are working on similar programs. Also in 2017, 23 states and cities introduced legislation advancing different types of these public/private partnerships to make retirement planning accessible to all.

As a financial services company, we serve as stewards of the capital that workers are relying on as they look toward retirement. It’s our commitment to all retirees who are contributing to a plan. And as a society, we should have the political will and ambition to make the same commitment to one another.

1. Kirkham, E. (2016, March 14). 1 in 3 Americans Has No Retirement Savings | Money. Retrieved February 02, 2018, from

2. Shin, L. (2015, October 12). The Retirement Crisis: Why 68% Of Americans Aren't Saving In An Employer-Sponsored Plan. Retrieved February 02, 2018, from

3. Harvey, C. (2016, April 27). Access to Workplace Retirement Plans by Race and Ethnicity. Retrieved February 02, 2018, from

Topics: Pensions

Martin Sullivan | State Street Corporation

Martin Sullivan is a senior vice president of State Street Corporation. He leads the strategic and business development objectives of Institutional Investors  Services, a division of State Street Global Services.