The competition is fierce, but perhaps the worst state-level policy proposal that’s been bandied about in recent years would have the “laboratories of democracy” run pension plans for businesses and/or nonprofits that don’t currently offer retirement benefits.
In California, it’s now the law. Governor Jerry Brown has signed a bill which, as the Los Angeles Times described it, “requires all California companies with at least five employees to either offer their own retirement savings plan or enroll workers in the new California Secure Choice Retirement Savings Program.”
Might the Land of Enchantment be next? AARP New Mexico claims it is “time to start looking at some viable solutions that allow New Mexicans to have a secure retirement.” The editorial page of the Albuquerque Journal wants legislators to “consider what can be done to level the retirement playing field for private sector employees in the state.”
Enter Sen. Martin Heinrich. Yesterday, he introduced the “State Retirement Savings Act,” which “would allow states to create Individual Retirement Account … programs where workers and employees would automatically be enrolled upon hiring to start saving.” The legislation “would give state legislatures the legal authority to build new retirement programs that are custom tailored for each state.”
Yeesh. Maybe before we shove more people into politician-overseen pension funds, it’s worth examining where things stand now. The Texas Public Policy Foundation’s Chuck DeVore notes that the California Public Employees’ Retirement System is “grossly underfunded.” Include pensions for teachers and local governments in the Golden State, and the retirement debt “is about $991 billion.”
The Pew Research Center estimates that in 2014, New Mexico’s Public Employees Retirement Association and Educational Retirement Board did not attain positive “net amortization,” and thus failed to reduce their unfunded liabilities. At 67 percent, the share the plans met was just a few percentage points higher than California’s dismal ratio, and among the lowest in the nation.
But wait — it gets worse. Estimates of the national figure for public-pension debt vary, but are usually in the $2 trillion ballpark. However, there is reason to believe the figure is much higher. As the American Enterprise Institute’s Andrew G. Biggs observed in July, if the rules recommended by a recent task force commissioned by the Actuarial Standards Board are adopted, “actuarial valuations for state and local government pensions will report unfunded liabilities of over $5 trillion and funding ratios of just 39 percent.” New Mexico’s unfunded liabilities, currently totaling about $10 billion, would surely be much higher under “market valuation.”
Heinrich’s legislation, and pressure within the state to have government meddle with retirement income in the private sector, warrant strict scrutiny — and severe skepticism.
Liberals always advocate spending other peoples’ money.
Heinrich has never earned a penny. He has been at the
public trough all his adult life.
Workers already have a retirement plan wherever and however they work in this country. It is called an Individual Retirement Account (IRA). These plans are voluntary, not mandatory, and the workers OWN the funds they put into it. There is no need for any state to attempt to duplicate this option.
On the horizon is the very real possibility of public sector defined benefit pension plans ending up in bankruptcy court. Although there is no provision for states to file bankruptcy , there is no such prohibition against lesser governmental entities filing a Chapter 9 (such as counties, cities and local school districts). That’s what Detroit did. The best short hand way to gauge the financial well being of a municipal corporation is the municipal bond rating. Red alert when ratings fall below “A.” About 18 months ago, either S&P or Moody’s placed both Santa Fe City and Santa Fe County on credit watch because of their enormous public sector pension liability
This is confusing to me…do these proposals talk about enlisting private sector employees in defined benefit or defined contribution plans?
I believe the precise makeup of those plans is up for discussion, but it would likely involve more direct government involvement/management than do 401K plans.
If the government is going to mandate a defined-contribution pension system for private-sector employees, it’s only fair to extend the same mandate to government employees as a replacement for their failing defined-benefit pension plans.