The Cares Act

Wisconsin Finds Owners of Lost Pensions

Some people lose old retirement accounts because they forget about them. Others don’t want the hassle required to retrieve small amounts. And workers who change jobs fairly often can leave a lot of small accounts in their wake.

As a result, millions of dollars of retirement wealth – in pensions, 401(k)s, IRAs, profit-sharing plans, and annuities – sit in state repositories of unclaimed property.

So how can workers and retirees be united with their long-lost money?

To answer this question, a new study contrasts what has happened to unclaimed retirement accounts in two states with vastly different approaches to handling them: Wisconsin and Massachusetts.

Wisconsin in 2015 began to use Social Security numbers to automatically match up and return misplaced retirement accounts to their owners. As long as the account has a Social Security number attached to it, the state can find a resident’s current contact information in Wisconsin’s taxpayer records.

Under this system, two-thirds of the accounts were returned in 2016 and 2017, the researchers found.

Over the same two years in Massachusetts, only 3.4 percent of unclaimed retirement accounts were returned to their owners. Massachusetts takes the same passive approach used in most states: individuals must initiate the process by locating an account in the state’s unclaimed property database and then retrieve it themselves.

The University of Wisconsin study also uncovered an explanation for why some people are motivated to track down accounts on their own. …Learn More

Teacher teaching a class

Smaller Pensions Don’t Spur More Saving

Most state and local governments provide their employees with traditional pensions, which are nice to have. But not all pensions are equally generous.

The monthly benefits vary from one place to the next, and some governments have cut costs by reducing pensions for their newest hires. Further, one in four public-sector workers aren’t currently covered by Social Security, because their employers never joined the system.

A logical back-up plan for these workers would be to contribute money to the supplemental savings plans that most public-sector employers provide. When the workers retire, they can add the money saved in their accounts – a 401(k), 401(a), 457 or 403(b) – to their pension benefits.

But researchers at the Center for Retirement Research (CRR) find that workers are only slightly more likely to participate in a savings plan if they work for government employers with less generous pensions – a criterion based on how much of the worker’s current income will be replaced by the pension after they retire.

This lackluster response may not be surprising. Workers can see what’s deducted from their paychecks every week but don’t necessarily understand how these deductions – combined with their employer’s contributions – will translate to a pension.

Public-sector workers are probably more aware of whether their employers are part of the Social Security system. But apparently workers don’t consider that either. …Learn More

ACA Eased the Financial Burden on Families

Woman and baby at the doctors

The Affordable Care Act (ACA) has reduced families’ medical costs significantly.

The ACA’s main goal was to provide coverage for the first time to workers who lack employer health insurance. But the expansion of free or subsidized health care to millions of parents with low and modest incomes has improved their financial stability and freed up money for their families’ other critical needs, concluded a new University of California at Davis study.

The main way the ACA expanded coverage was by giving states the option of providing Medicaid to workers earning up to 138 percent of the federal poverty level. The law also increased the number of children with health insurance, because federal and state outreach during the Medicaid expansion raised parents’ awareness of two separate insurance programs that had long been available to children: Medicaid and the Children’s Health Insurance Program. To help families with modest incomes, the health care law put a cap on their annual medical spending.

Prior to the ACA’s passage, out-of-pocket medical costs were a high financial burden for 15 percent of U.S. families. That has fallen to about 10 percent of families in the years since passage, the researchers said.

What qualifies as a high cost burden depends on the family’s income. One example: the researchers determined that a family earning $75,000 had a high cost burden if they paid more than 8.35 percent of their income for out-of-pocket deductibles and copayments.

However, the study is not a current picture of the situation, because it was based on data from health care spending surveys in 2000 through 2017, prior to the pandemic. During the past year, millions of people were laid off and lost their employer health insurance when they may need it most.

But the ACA’s benefits are clear, the researchers said. Another aspect of the reform was to allow workers who earn too much to qualify for Medicaid to purchase subsidized private health insurance on the state exchanges. The law capped the total that workers spend on health care – once they reach the cap, their care is fully covered. …Learn More

New York during COVID-19

Struggling Workers’ Financial Woes Mount

The COVID-19 economy is really a tale of two worlds.

The stock market and housing market have largely shrugged off the economic slowdown. But severe financial problems are brewing for millions of workers who have lost their jobs or are earning less in a lackluster economy.

The assistance passed by Congress will certainly help. Still, half of all workers reported in a Transamerica Institute survey late last year that they are experiencing at least one employment disruption, whether a layoff, reduced work hours, shrinking paychecks and commissions, or an early retirement. A crisis also looms for thousands of renters if the Centers for Disease Control allows its eviction moratorium to expire at the end of this month.

Paying taxes is another big worry. When the pandemic struck and unemployment spiked last spring, the IRS postponed the deadline for filing federal taxes by three months, to July 15.

COVID-19 hasn’t gone away – and neither has concern about paying taxes. More than half of taxpayers said they might have to borrow money to pay their 2020 taxes this April, according to a LendEdu survey last month.

Other aspects of Americans’ financial problems were captured in two more surveys about the pandemic’s impact:

The Millennials who are still saddled with student loans have struggled for years to pay their other living expenses. The COVID-19 relief bill gave them a respite by suspending their monthly payments for most of 2020, and the U.S. Department of Education extended that at least through January. But one financial problem has been replaced by others for the young adults who are unemployed or earning less.

About one in five people in their late 20s and 30s reported in a 2020 survey by Georgetown University’s business school that the pandemic forced them to take a variety of stopgap financial measures. These have included dipping into retirement funds, delaying or reducing credit card payments, and getting food and rental assistance from non-profits. …Learn More

Is Job Automation Connected to Disability?

Grocery store clerk with a mask on

Manufacturing workers file more applications to the federal disability program than any other workers. What seems new is that jobs like administrative assistant and retail worker aren’t that far behind.

Is one possible explanation that the computerization of once-routine occupations like these plays a role in decisions to apply for disability benefits?

Consider the example of a retail worker with a bad back who is laid off, or perhaps she quits because she struggled to handle the cognitive challenges of increased automation. Even simple tasks such as processing customer transactions or locating a product at another store now require computer skills. And the worker’s skills may not match up with the technical qualifications needed to find a new job in a labor market where routine jobs are rapidly disappearing.

Given her disability, the worker might decide that her best – or only – option to ensure she has some income is to apply for disability benefits.

Job Automation ChartA study by Mathematica researcher April Yanyuan Wu did not find direct evidence that this skills mismatch triggers applications. But her findings suggest it might be a factor.

Wu provided new statistics on the types of jobs once held by disability applicants and on the changes over time in the job attributes, compared with the changes in job attributes facing the general working population.

Between 2007 and 2014, for example, the share of the applicants’ former jobs that required computer skills rose by 18 percentage points, outpacing the increase for the labor force overall. At the same time, jobs requiring moderate cognitive ability also increased more for people with disabilities than it did for all workers.

Stress is a telling indication of the challenges of increased job automation. The growth in high-stress jobs once held by people with disabilities was much larger than for workers overall, according to the study, which was funded by the U.S. Social Security Administration. …Learn More

House roof illustrations

Boomers Repairing their Mortgage Finances

The housing market collapse more than a decade ago inflicted a lot of financial damage on baby boomers nearing retirement. But a new study finds that some have been trying to make up for lost time by rapidly reducing their mortgage debt.

Since the Great Recession, the boomers who were born in the 1950s – they are now in their 60s – have paid down more than 40 percent of their remaining mortgages and home equity loans, on average – a much faster pace than their parents did at that age.

Not all the damage from the Great Recession can be repaired, however, because many people lost their homes in the wave of foreclosures. For example, the homeownership rate for the boomers born in the early 1950s quickly dropped slightly more than 10 percentage points after the housing crisis, to 67 percent, where it remained until 2016, the last year of data in the study.

Since then, the U.S. homeownership rate has increased but is still below the pre-recession peak.

The impact of the housing crisis was far less dramatic for Americans born in the early 1930s. Their homeownership rate dipped 2 percentage points right after the crisis, to a relatively high 76 percent, according to Jason Fichtner of Johns Hopkins University.

The decline in boomers’ homeownership leaves fewer of them with housing wealth to fall back on when they retire.

They have also fallen behind in fully paying off their mortgages, which would eliminate their monthly payments and make the house a low-cost place to live. Just half of the boomers born in the early 1950s who held onto their homes during the Great Recession own them outright – two-thirds of the people born in the early 1930s had paid off their mortgages by that age. …Learn More

Hands fighting over a rope

Top Economists Seek Solutions to Inequality

Something remarkable is happening in the economics profession. Top researchers in the field have begun arguing for policies to alleviate growing U.S. income and wealth inequality.

For decades, inequality wasn’t taken very seriously by economists. But that view “has changed dramatically,” said James K. Galbraith of the University of Texas at Austin, who moderated a Zoom panel at the annual meeting of the Allied Social Science Associations last week.

Inequality, Galbraith said, has “become one of the most important questions economists face.”

And COVID-19, argued Nobel laureate Joseph Stiglitz, a panelist, “has brought out very forcefully the nature of the inequalities in our society” and has “exacerbated those inequalities.”

The pandemic’s effects include larger increases in unemployment for low-wage workers, who are disproportionately Black and Latino and often work for small businesses devastated by efforts to suppress the virus. In addition, front-line workers like home health aides and meat-packing workers are being exposed to the virus but don’t always have paid sick time. There are also growing concerns about the longevity gap and about a widening educational gap between students from poor and high-income neighborhoods resulting from online learning.

The economists, having agreed inequality is a problem, identified the myriad forces driving it. They range from the persistent segregation of Black and white neighborhoods to the ability of the wealthy to invest and accumulate more wealth, while wage workers can barely get by. In a cutthroat global economy, the decline of unions has also stripped workers of their ability to bargain with employers for higher wages, they said.

Another panelist, Teresa Ghilarducci, brought attention to the inequality that exists among retirees. This can be seen in the downward mobility many people experience after they retire and can no longer support the standard of living they had while they were working.

To address these complex problems, the economists said a comprehensive policy agenda is needed that includes beefing up Social Security benefits – the great equalizer – for disadvantaged retirees, more taxation of inheritances, educational equality at the preschool through college levels, sturdier social safety nets, and new labor rules that give workers back some of the power they have lost.

Another panelist, Jason Furman, former chair of President Obama’s Council of Economic Advisers, agrees that an array of policies will be required to combat inequality. But he also argued that the two major relief bills Congress passed last year – a total of $2.9 trillion – probably reduce inequality. …Learn More