Podcast Center
Video Center
Webcasts
Resource Center
Events
By 
May 05, 2020 at 02:32 PM
Discussions are afoot as a prelude for the government to possibly offer to compensate companies substantially to keep employees on their payroll — though not working — as a better alternative to laying them off and “tossing them out into the unemployment insurance line,” Alicia Munnell, Boston College management sciences professor and director of its Center for Retirement Research, tells ThinkAdvisor in an interview.
Denmark, the U.K. and other countries have such programs. Why not America, argues Munnell, who says that both conservatives and liberals favor the notion. The potential sticking point: Just how much compensation would companies receive?
Munnell served on President Bill Clinton’s Council of Economic Advisers and was assistant secretary of the Treasury for economic policy from 1993 to 1995. Previously, she was senior vice president and research director at the Federal Reserve Bank of Boston, where she worked for two decades.
In the interview, she examines the results of a study the Center for Retirement Research released last year showing that 40% of U.S. households have in fact more than $400 in emergency money, a figure that’s been widely reported. Credit card and loan debt, however, offset the higher amount.
Another paper the Center published — in March of this year — which Munnell discusses, found that, shockingly, baby boomers ages 51 to 56 have fewer assets in their 401(k) accounts than do younger boomers.
As for older Americans who have lost their jobs because of financial fallout from the coronavirus, Munnell suggests: Don’t take Social Security early, and withdraw money from a 401(k) account only as a last resort. If unsuccessful in finding a new job, consider borrowing money from parents or adult children, she says.
Munnell recently published a paper, “Social Security’s Financial Outlook: The 2020 Update in Perspective,” based on the 2020 Trustees Report, released in late April. Though the report was written before COVID-19 hit, Munnell writes that the outbreak is “unlikely to fundamentally alter the long-term financial status of the [Social Security] program.” The Trust Fund reserve is expected to run dry in 2035, unchanged from last year’s projection.
The professor concludes the paper noting that once the pandemic “subsides, stabilizing Social Security’s finances should be a high priority to restore confidence … and to assure working Americans that they will receive the income they need in retirement.”
ThinkAdvisor interviewed Munnell by phone on April 22. The wide-ranging conversation covered some large companies’ suspension of 401(k) matching programs and the bad luck of millennials getting hit by two huge financial crises just as they’ve begun their careers. They have little saved.
Here are highlights of our interview:
Broadly, what are your thoughts about the pandemic’s economic fallout?
You won’t be able to find a place where something good is happening. The key thing is how long does this go on? If it’s over in another three months, then we could bounce back. If it drags on and on, then it can be much more severe.
“Congress missed the boat,” you write, in enacting the CARES Act relief legislation. That is, it should have offered to compensate employers to continue to pay workers instead of laying them off and “making unemployment insurance so attractive.” What’s your thinking behind this?
There are two reasons to try to maintain the employee-employer relationship. One: It’s better for the employee to know that he or she has a continued link to his or her employer. It reduces anxiety and, in the U.S., is an important way of maintaining health insurance. Two: In terms of getting the economy moving again, to have everyone frozen in place [keeping their jobs] is much better than tossing them out into the unemployment insurance line and having all those work relationships disrupted.
Is it too late to start such a program?
No. It’s being discussed. This is still a real alternative that really merits consideration because although we have lots of people on unemployment insurance, there are still 80 million that have some link to their employers.
Wouldn’t it pose a big issue of how much to compensate employers?
That’s the thing that would be argued about: Would the government pay 65%, 75%, 85%? Congress would have to hammer that out. But the point is to pay a substantial amount.
Do you see this plan being a partisan issue?
I’ve been involved as a hanger-on in terms of conversations about this. Apparently, conservatives like it, liberals like it, labor union people like it. So it seems that it’s something everyone could agree on.
How would it be executed, specifically?
You’d kind of reverse the payroll tax system — that way, you’ll get money to companies quickly.
Would America be the first to do this?
No. Denmark, the U.K. and other [countries] have done it.
A Pew Research Center survey in March showed that 47% of Americans have only enough emergency money to cover three months’ expenses. Other surveys show that many consumers are three paychecks away from being unable to pay bills and have only $400 in emergency savings. The Center for Retirement Research published a study about this issue last July. Please discuss.
One survey said that 40% of people don’t have $400 to turn to in an emergency. We did a more detailed survey [“Why Are So Many Households Unable To Cover a $400 Unexpected Expense?”- July 2019] showing that they actually have more [emergency cash] than that, but they also have credit card bills [and outstanding loans]. Once you net out those two, you get back to that 40%.
In view of the pandemic, what are the implications of this?
A lot of people don’t have any financial flexibility at all. And if they’ve now lost their job, I can’t even imagine the anxiety they must be experiencing at this time.
A study the Center published this past March explored “Why Do Late Boomers Have So Little Retirement Wealth?” So are baby boomers ages 51 to 56 financially unprepared for retirement?
They’ve been covered by 401(k) plans their whole work-life, but their 401(k) assets are actually lower than younger-age cohorts. That’s pretty shocking to us. We haven’t yet figured out why this has happened.
