Editor's Note: this article originally appeared in the 2012 Print Version of AARP: The Journal.

Using one platform to offer a variety of services

Known in the UK under the term “corporate platform” to indicate that it expands options available on the employer’s benefit platform, the development allows employees to use the employer’s retirement savings mechanism to save and invest for additional nonretirement purposes. When the corporate platform is fully implemented, employees will be able to man­age almost all of their investments and savings plans from one location, thus giving them a con­solidated view of their entire financial status. If carried to its full potential, the expanded saving platform will allow employees to shop for sav­ings products, among options that are available on the platform, instead of having to seek them out from individual suppliers—a search that often takes up work hours. Of even greater value, it gives employees one source to go to for indi­vidualized advice or financial literacy training.

The enhancement has special significance in the UK, where by fall 2012, the larger employers that don’t offer any other type of pension or retirement savings plan, must begin to automatically enroll their employees into basic retirement savings accounts. This requirement is causing a great deal of discussion about the future role of employer-provided benefits, as well as recon­sideration of the fees and services included in a traditional package. The platform enhancements allow an employer to differentiate its employee benefit package from the required basic account structure. It also gives younger employees a benefit of more immediate value, than they would have from a retirement savings account that they won’t access for a good 40 years.

Presentations from a variety of service providers at an October 2011 summit hosted by Pensions Insight, a UK trade journal, showed that the platform can be easily customized to meet the special needs of a specific workforce. Using a single computer interface, employees can select from a wide variety of savings and investment options that are appropriate for their income level and stage of life. Thus, an upper income manager who manages his or her own finances could see more sophisticated products, while an entry-level worker sees more basic sav­ings products. Live presentations by financial professionals who explain what is available on the computer platform add to the system’s value and increase its use.

A place to provide choice and to build financial literacy

The platform will have special value for moderate- and lower-income employees. While higher salaried employees may appreciate the opportunity to build their investments, the real value of the platform will be to enable moder­ate- and lower-income workers to find savings opportunities that they might otherwise miss because they don’t know where to go, are uncertain about what is a fair price, or for a variety of other reasons. Because employees tend to believe that services included on the corporate platform are implicitly endorsed by the employer, they usually have greater faith that the services are from legitimate providers at a fair price.

Employees at all levels can also use the site to receive guidance on individual products or basic financial literacy training. Individuals can choose from a range of options, from short videos on a specific topic by experts or fellow employees, to longer connected courses designed to meet the needs of specific age or income groups. Use is increased when employ­ees receive emails or text messages geared to birthdays or other life events, or generated after the employee visits a specific part of the website.

Understanding the value of peer evaluations to motivate others, some providers include a place where employees can post feedback about spe­cific products or savings choices. These postings help to guide other employees’ decisions and build the reputation of the platform as a source of unbiased information. The site can also include links to outside advisors who can answer specific questions, guide employees to another site for more information, or perform other services either online or over the telephone.

Differing age groups can be contacted and guided through different technologies. At the UK platform summit, David Harris, of Tor Financial Consulting, showed that younger employees preferred different communication methods than either older workers or the usual way employers provide information. However, the platform is able to use a wide variety of methods and is equally effective no matter which is used.

The platform’s value to international policy makers

Although the UK’s platform is intended as an enhancement to employer-provided benefits, it can also be used for a wide variety of policy goals, as the basic structure can be easily adapted to meet almost any nation’s specific tax and savings system. In the United States alone, policy experts have proposed dedicated savings accounts for nonretirement purposes ranging from unemployment benefits and retraining, home purchases, health care, and long-term health care coverage, to repaying student loans or building college balances for children or grandchildren. However, if all of these various accounts were established and funded, it is doubtful the employee would have any money left for food, clothing, and shelter.

Rather than having a host of specific savings programs, employees may be better served by more flexible accounts usable for a variety of purposes, as outside developments or chang­ing needs dictate. The platform concept would allow individuals to choose which purposes they need to save for and how much to save for each. Combined with targeted guidance or education, this structure could expose individuals to pos­sibilities they might not have considered before.

The structure is ideally suited to employment situations, but it could also be used by the self-employed or by consultants at sites aimed specifically at them and sponsored by trade associations, unions, or even government agen­cies. While their circumstances may preclude payroll deductions, the same products could be offered through direct debits to bank accounts.

The added value of nudge

The flexibility of the platform allows it to be used by employees with all levels of financial sophistication, but new participants would benefit from a variation on automatic enroll­ment that places certain amounts, in addition to the retirement savings amount, into a general savings account or similar vehicle. The automatic savings amounts deducted need not be large, and where the law allows, could vary according to employee age, with a larger proportion of the overall deduction going to nonretirement purpose for younger employees and to retirement for older ones.

As with automatic retirement enrollment, the employee would have the ability to vary amounts, divide the total among various accounts, and even stop all future contributions. However, automatic enrollment would offer workers direct experience with the nonretire­ment side of the platform. By varying enrollment in various accounts according to employees’ age, automatic enrollment could encourage them to consider saving for various purposes, such as a first home, college tuition for children, or additional health services.

Improving retirement security

Although the platform is applicable to a wide variety of other uses, its primary purpose is to build retirement security. Before retirement, the platform helps employees understand how to save, what they have, and how much more they need for a comfortable lifestyle. The other savings provide funds that can be used in the event of an emergency, thus helping to reduce leakage from retirement accounts in countries that allow early access to that money. At retire­ment, the platform helps individuals to see what other assets are available, and what loans or other liabilities must be factored in. In the UK, it is also being used to encourage individuals to use annuities and add them to their invest­ments. The UK experience can help to guide US policymakers in their efforts to increase the use of similar products.

The enhanced information and flexibility of the corporate platform should help individuals to better understand their finances and how to meet their goals. It moves retirement savings plans from a minor part of employees’ financial lives, to a central feature that has many more uses than just an event many years in the future. This promotes regular use of the platform, and a fuller understanding of what is necessary for a comfortable retirement.

Increasingly, many Marylanders are unprepared for retirement.

The US has the broadest range of retirement savings options in the world. There are thousands of retirement products offered. But most Marylanders don’t use them.

The need is growing. The Baby Boomers are the largest generation in history. They will live longer in retirement than any generation in history.

But – financially – many are not prepared. Many have virtually no retirement savings: more than a third those within ten years of retirement age have saved less than $10,000. $10,000 invested and spent over the average person’s retirement works out to about $1,000 of income per year. Even with Social Security, that’s not much to live on.

Fears about retirement are the #1 economic concern. Many Marylanders know they’re unprepared – and they’re worried about it. Concerns about retirement security are now more broadly based than the cost of health care, fear of job loss or other economic concerns – and have been for over a decade.3 Those concerns have grown since the financial crisis, even though the stock market has recovered. Many know they’ll have to defer retirement—and many fear they will never be able to afford to retire at all.

The key to retirement saving is having a retirement plan and contributing to it every paycheck. But many businesses, including most smaller businesses, don’t offer retirement plans. As a result 1,000,000 Marylanders working in private businesses across the State don’t have a retirement plan. There are, of course, individual retirement accounts (IRAs) -- but almost no one uses them who didn’t get access through an employer-based plan via payroll deduction.

Having a plan is essential, but not a panacea. Even when plans are available, many employees don’t join. Many who do contribute and save less than they need to meet their own goals. Even with plans, many will need to save more.

The challenge continues at retirement, because most of these plans are paid out in a single lump sum payment—few plans offer reliable retirement income for life that traditional pensions do. Since most retirees do not consult financial advisors and are not financial experts themselves, some who live longer than average or are unlucky in their investments will find that they haven’t saved enough and will exhaust their savings.

They will, of course, have Social Security. That’s why it’s so important that Social Security be both preserved and strengthened. But the average monthly benefit in Maryland is about $1,300 and for most people Social Security covers only a fraction of their basic needs in retirement. Most Marylanders will need additional income from retirement savings – and the State of Maryland can help them get it.

Other states and other governments are making it easier for people to save and for private employers to help them do it. Maryland should, too. Acting now will save Maryland taxpayers millions in the future.

California, Massachusetts, and Illinois have already enacted legislation. Illinois created a new program that requires employers who have no retirement plan to automatically enroll their employees in a state-created program. Massachusetts authorized a program for uncovered employees of non-profits. California created a board to plan and propose program similar to that in Illinois. Similar legislation is being or has been introduced in some fifteen other states – states all across the country with varying political orientations, populations, and economic bases.

Although there are many variations under consideration, these programs generally provide for an automatic payroll deduction of a set amount unless the employee opts out. Funds are to be invested professionally and may be pooled to achieve higher returns and lower costs. Those who cannot or do not want to make complex financial decisions are not required to do so – their contributions are placed automatically into a reliable fund or set of funds.

In order to ensure that employers – many of whom are small businesses – can participate in a program, it must be designed to help them avoid significant disruption, expense or administrative burden. This can be accomplished by enabling employers to use current payroll processes to help their employees to build retirement security, without requiring employers to make contributions themselves.

If Maryland doesn’t act now, Maryland taxpayers will face higher costs for decades to come.

These plans are designed to be self-sustaining: their operating costs are paid for by plan contributions and the State would not assume any obligations. In practice, however, these plans will end up saving taxpayer funds: If Maryland doesn’t act now, Maryland taxpayers will face higher costs for decades to come, as retirees are forced to turn to State assistance instead of living on their own savings.

There are many ways to improve retirement security. The key is for businesses to help their employees save, without becoming overburdened themselves.

Task Force is not recommending any one approach, but strongly recommends that Maryland join other states, by developing and implementing a plan that helps Marylanders have more secure retirements.We recommend development of a specific state-based program that meets Maryland’s needs from the options discussed in our report.

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Editor’s Note: This blog post is one in a series of posts in which guest bloggers respond to the Brookings paper, “The potential and limitations of impact bonds: Lessons from the first five years of experience worldwide."

In 2014, clause 5 (1) of the County Early Childhood Education Bill 2014 declared free and compulsory early childhood education a right for all children in Kenya. Early childhood education (ECE) in Kenya has historically been located outside of the realm of government and placed under the purview of the community, religious institutions, and the private sector. The disparate and unstructured nature of ECE in the country has led to a proliferation of unregistered informal schools particularly in underprivileged communities. Most of these schools still charge relatively high fees and ancillary costs yet largely offer poor quality of education. Children from these preschools have poor cognitive development and inadequate school readiness upon entry into primary school.

The Kenyan constitution places the responsibility and mandate of providing free, compulsory, and quality ECE on the county governments. It is an onerous challenge for these sub-national governments in taking on a large-scale critical function that has until now principally existed outside of government.

In Nairobi City County, out of over 250,000 ECE eligible children, only about 12,000 attend public preschools. Except for one or two notable public preschools, most have a poor reputation with parents. Due to limited access and demand for quality, the majority of Nairobi’s preschool eligible children are enrolled in private and informal schools. A recent study of the Mukuru slum of Nairobi shows that over 80 percent of 4- and 5-year-olds in this large slum area are enrolled in preschool, with 94 percent of them attending informal private schools.

In early 2015, the Governor of Nairobi City County, Dr. Evans Kidero, commissioned a taskforce to look into factors affecting access, equity, and quality of education in the county. The taskforce identified significant constraints including human capital and capacity gaps, material and infrastructure deficiencies, management and systemic inefficiencies that have led to a steady deterioration of education in the city to a point where the county consistently underperforms relative to other less resourced counties. 

Nairobi City County now faces the challenge of designing and implementing a scalable model that will ensure access to quality early childhood education for all eligible children in the city by 2030. The sub-national government’s resources and implementation capacity are woefully inadequate to attain universal access in the near term, nor by the Sustainable Development Goal (SDG) deadline of 2030. However, there are potential opportunities to leverage emerging mechanisms for development financing to provide requisite resource additionality, private sector rigor, and performance management that will enable Nairobi to significantly advance the objective of ensuring ECE is available to all children in the county.

Social impact bonds (SIBs) are one form of innovative financing mechanism that have been used in developed countries to tap external resources to facilitate early childhood initiatives. This mechanism seeks to harness private finance to enable and support the implementation of social services. Government repays the investor contingent on the attainment of targeted outcomes. Where a donor agency is the outcomes funder instead of government, the mechanism is referred to as a development impact bond (DIB).

The recent Brookings study highlights some of the potential and limitations of impact bonds by researching in-depth the 38 impact bonds that had been contracted globally as of March, 2015. On the upside, the study shows that impact bonds have been successful in achieving a shift of government and service providers to outcomes. In addition, impact bonds have been able to foster collaboration among stakeholders including across levels of government, government agencies, and between the public and private sector. Another strength of impact bonds is their ability to build systems of monitoring and evaluation and establish processes of adaptive learning, both critical to achieving desirable ECD outcomes. On the downside, the report highlights some particular challenges and limitations of the impact bonds to date. These include the cost and complexity of putting the deals together, the need for appropriate legal and political environments and impact bonds’ inability thus far to demonstrate a large dent in the ever present challenge of achieving scale.

In the Kenyan context, especially at the sub-national level, there are two key challenges in implementing impact bonds.

To begin with, in the Kenyan context, the use of a SIB would invoke public-private partnership legislation, which prescribes highly stringent measures and extensive pre-qualification processes that are administered by the National Treasury and not at the county level. The complexity arises from the fact that SIBs constitute an inherent contingent liability to government as they expose it to fiscal risk resulting from a potential future public payment obligation to the private party in the project.

Another key challenge in a SIB is the fact that Government must pay for outcomes achieved and for often significant transaction costs, yet the SIB does not explicitly encompass financial additionality. Since government pays for outcomes in the end, the transaction costs and obligation to pay for outcomes could reduce interest from key decision-makers in government.

The above challenges notwithstanding, a combined approach of results-based financing and impact investing has high potential to mobilize both requisite resources and efficient capacity to deliver quality ECE in Nairobi City County. To establish an enabling foundation for the future inclusion of impact investing whilst beginning to address the immediate ECE challenge, Nairobi City County has designed and is in the process of rolling out a modified DIB. In this model, a pool of donor funds for education will be leveraged through the new Nairobi City County Education Trust (NCCET).

The model seeks to apply the basic principles of results-based financing, but in a structure adjusted to address aforementioned constraints. Whereas in the classical SIB and DIB mechanisms investors provide upfront capital and government and donors respectively repay the investment with a return for attained outcomes, the modified structure will incorporate only grant funding with no possibility for return of principal. Private service providers will be engaged to operate ECE centers, financed by the donor-funded NCCET. The operators will receive pre-set funding from the NCCET, but the county government will progressively absorb their costs as they achieve targeted outcomes, including salaries for top-performing teachers. As a result, high-performing providers will be able to make a small profit. The system is designed to incentivize teachers and progressively provide greater income for effective school operators, while enabling an ordered handover of funding responsibilities to government, thus providing for program sustainability.

Nairobi City County plans to build 97 new ECE centers, all of which are to be located in the slum areas. NCCET will complement this undertaking by structuring and implementing the new funding model to operationalize the schools. The structure aims to coordinate the actors involved in the program—donors, service providers, evaluators—whilst sensitizing and preparing government to engage the private sector in the provision of social services and the payment of outcomes thereof.

Event Information

On Wednesday, June 2, the Center for Universal Education at Brookings hosted a discussion on the need to refocus the international education dialogue from school enrollment to learning achieved in developing countries. Participants, who included education experts from academia, international organizations and government, assessed the current state of systematic efforts at the global level to measure learning outcomes.

Center for Universal Education Co-Director and Senior Fellow Jacques van der Gaag opened the event by charting the landscape of learning, including education outside the primary school classroom, during early childhood development and the importance of acquiring both cognitive and non-cognitive skills for ensuring learning outcomes.

View the event summary »

Event Materials

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Washington is again paralyzed and pulling back on clean energy economic development. Deficit politics and partisanship are firmly entrenched and the raft of federal financial supports made available through the 2009 stimulus law and elsewhere is starting to expire.

No wonder it’s hard to imagine—especially if you’re sitting in the nation’s capital—how the next phase of American clean energy industry growth will be financed or its next generation of technologies and firms supported.

And yet, one source of action lies hidden in plain sight. With federal clean energy activities largely on hold, a new paper we are releasing today as part of the Brookings-Rockefeller Project on State and Metropolitan Innovation argues that U.S. states hold out tremendous promise for the continued design and implementation of smart clean energy finance solutions and economic development.

Specifically, we contend that the nearly two dozen clean energy funds (CEFs) now running in a variety of mostly northern states stand as one of the most important clean energy forces at work in the nation and offer at least one partial response to the failure of Washington to deliver a sensible clean energy development approach.

To date, over 20 states have created a varied array of these public investment vehicles to invest in clean energy pursuits with revenues often derived from small public-benefit surcharges on electric utility bills. Over the last decade, state CEFs have invested over $2.7 billion in state dollars to support renewable energy markets, counting very conservatively.  Meanwhile, they have leveraged another $9.7 billion in additional federal and private sector investment, with the resulting $12 billion flowing to the deployment of over 72,000 projects in the United States ranging from solar installations on homes and businesses to wind turbines in communities to large wind farms, hydrokinetic projects in rivers, and biomass generation plants on farms. 

In so doing, the funds stand well positioned—along with state economic development and other officials—to build on a pragmatic success and take up the challenge left by the current federal abdication of a role on clean energy economic development.

Yet here is the rub: For all the good the funds have achieved, project-only financing—as needed as it is—will not be sufficient to drive the growth of large and innovative new companies or to create the broader economic development taxpayers demand from public investments.  Also needed will be a greater focus on the deeper-going economic development work that can help spawn whole new industries. 

All of which points to the new brand of fund activity that our paper celebrates and calls for more of. 

In recent years, increasingly ambitious efforts in a number of states have featured engagement on at least three major fronts somewhat different from the initial fund focus: (1) cleantech innovation support through research, development, and demonstration (RD&D) funding; (2) financial support for early-stage cleantech companies and emerging technologies, including working capital for companies; and (3) industry development support through business incubator programs, regional cluster promotion, manufacturing and export promotion, supply chain analysis and enhancement, and workforce training programs.

These new economic development efforts—on display in California, Massachusetts, New York, and elsewhere—show the next era of state clean energy fund leadership coming into focus. States are now poised to jumpstart a new, creative period of expanded clean energy economic development and industry creation, to complement and build upon individualistic project financing. 

Such work could not be more timely at this moment of federal gridlock and market uncertainty.

Along these lines, then, our paper advances several recommendations for moving states more aggressively into this new period of clean energy economic development. We suggest that:

• States should reorient a significant portion (at least 10 percent of the total portfolio) of state CEF money to clean energy-related economic development

• States, as they reorient portions of their CEFS to economic development, should better understand the market dynamics in their metropolitan regions.  They need to lead by making available quality data on the number of jobs in their regions, the fastest-growing companies, the critical industry clusters, gaps in the supply chain for those industries, their export potential, and a whole range of economic development and market indicators

• States also should better link their clean energy funds with economic development entities, community development finance institutions (CDFIs), development finance organizations and other stakeholders who could be ideal partners to develop decentralized funding and effective economic development programs

In addition, we think that Washington needs to recognize the strength and utility of the CEFs and actively partner with them:

• The federal government should consider redirecting a portion of federal funds (for instance, from federal technology support programs administered by the Department of Energy and other programs meant for federal-state cooperation) to provide joint funding of cluster development, export programs, workforce training, and other economic development programs  through matching dollars to state funds that now have active economic development programs, and to provide incentives to states without such programs to create them

• The federal government should create joint technology partnerships with states to advance each state’s targeted clean energy technology industries, by matching federal deployment funding with state funding.

• The states and the federal government, more generally, should look to “decentralize” financing decisions to local entities with street knowledge of their industries, relying on more “development finance” authorities that have financed traditional infrastructure and now could finance new clean energy projects and programs

In sum, our new paper proposes a much greater focus in U.S. clean energy finance on “bottom up,” decentralized clean initiatives that rely on the states to catalyze regional economic development in regions. Such an approach—which reflects the emergence of an emerging “pragmatic caucus” in U.S. economic life—is currently demanded by federal inaction. However, it might also be the smartest, most durable way to develop the clean energy industries of the future without the partisan rancor and obtuseness that has stymied federal energy policy. State clean energy funds—having funded thousands of individual projects—bring significant knowledge to bear as they focus now on building whole industries. For that reason, the funds’ transition from project development to industry creation should be nurtured and supported.