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beyond blue
Labor Department Modernizes Retirement Rules

It’s been a consistent theme of this blog that the basic bargain of the blue social model—lifetime employment at a single employer, with benefits tied to that employment and the promise of a defined-benefit pension upon retirement—has broken down, and that figuring out a way to replace it is one of the central challenges and opportunities of our time. Transitioning to a new model that is compatible with the economic realities of the twenty-first century will be a long and intensive process, but one of the key areas for reform is retirement: Creating a system that allows people to save adequately and invest responsibly in portable accounts so that they can retire with dignity without the guarantee of a lifetime pension.

We are pleased to see the Obama administration taking some incremental steps in that direction. The Washington Post reports:

Millions of workers struggle to save for retirement in part because it isn’t easy enough to open an account or to have the money automatically deducted from their paychecks. But they could soon find themselves with more options.

On Thursday, the Labor Department unveiled a rule that should make it easier for states to launch their own retirement plans for private-sector workers who don’t already have access to savings accounts through their jobs. The rules, which were requested last year by President Obama, provide a clearer road map for states who want to provide such plans but needed more federal guidance. The department also announced a proposed rule that would open the door for large cities to create their own plans.

Thus far, many of the efforts to experiment with post-blue model retirement plans have come from Democrats. Blue states like Oregon, California and Illinois have taken the lead in setting up voluntary, portable retirement accounts, and now the Obama administration’s Labor Department is encouraging others to follow suit.

It’s easy to understand why Republicans might be wary of such efforts. Incompetent government efforts to manage the retirements of millions of public employees have ended in total disaster: State pension budgets are now trillions of dollars in the red. So it is critical that voluntary worker retirement accounts stay voluntary, and that the funds remain in control of employees and private institutions, not state governments or union officials. The role for the state must be to set up the architecture for a new system, not micromanage or regulate it to death, and conservatives are right to be vigilant of efforts to overreach.

At the same time, conservative resistance to any state participation in the savings and retirement system is likely to be self-defeating. The end result of the status quo is not likely to be some libertarian paradise, but a Bernie Sanders-style expansion of Social Security and other government benefits, as economic insecurity pushes American workers into the arms of politicians promising to recklessly double down on the blue social model, arithmetic be damned. So ceding this issue to Democrats is probably not smart politics in the long run.

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  • markterribile

    Why not start by relaxing the IRA and 401k rules and reducing some of the frustrating little stupidities? Here’s an example: I recently inherited a litle IRA money. But instead of incorporating it in my IRA, to be drawn when I need it, I have to take annual distributions (or cash it all out) on the schedule of the deceased owner.
    Of course, all of this is of little use if the investment climate spirals around the drain, courtesy of anti-business congressmen and economists. Successful retirement finance requires an economy in which savings and investment can work.

    • Andrew Allison

      And why, pray tell, should the legal obligation of your benefactor to take minimum distributions be waived for your benefit? What you inherited was, in effect, an annuity. Get over it.

  • Greg Olsen

    The relaxation of rules may actually be disastrous. In the process of allowing states to set up retirement plans, they removed disclosure requirements that are there to protect investors from unscrupulous portfolio managers. Instead it permits the states to create all manner of schemes to defraud savers.

    I am all for states being laboratories of democracy, but they should still be held to the same standards as Fidelity or any other manager of retirement funds.

  • LarryD

    401(k) – Private company, defined contribution
    403(b) – public schools and some 501(c)(3) organizations
    457 – some state and local governments

    Simplifying and consolidating the rules would be nice. One portable IRA an individual could use their entire working life, even as they move between public and private sectors and back again. Putting the Members of Congress and their staffs in the same boat as the rest of us, might make them a little more sympathetic to our concerns. And not allow them to park their wealth outside of the US (as has been reported for Nancy Pelosi). And people in government should have to park their account in blind trusts while in government.

    • f1b0nacc1

      Actually requiring Congress (and the courts and the executive branch, INCLUDING public sector workers) to ‘invest’ their money in federal and state bonds would have a wonderfully clarifying effect on their behavior.

  • circleglider

    Yet California’s Secure Choice is precisely a “Bernie Sanders-style expansion of Social Security.”

    Jason Willick has obviously never met any of the millions Americans who are convinced that Social Security is an earned asset and not government welfare.

  • Andrew Allison

    Oh, please. It’s perfectly simple to open an IRA or HSA. People are not doing it because they’d rather spend their money than save it.

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