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The Retirement Tangle

Ramesh Ponnuru offers a good overview of the federal-state retirement tangle that began in deep blue state houses but is now getting the attention of federal lawmakers:

The dispute concerns private-sector workers whose employers don’t sponsor retirement-savings plans such as 401(k)s. Several state governments want to run programs for those employees, whose employers would have to automatically enroll them unless the worker opts out.

Almost all retirement plans for private-sector workers are regulated by a 1974 federal law: the Employee Retirement Income Security Act. The law sets accounting standards on such plans, imposes fiduciary obligations on their administrators, and in other ways seeks to prevent abuse.

Pension plans for state government workers, on the other hand, are exempt from the law, known as ERISA, because of concerns about federalism. The state governments that want to establish these new retirement accounts for private-sector workers want them to be exempt from the law, too.

Three points are worth making here: First, Democratic state legislatures are right to try to try to encourage people to save more. As defined-benefit pensions become a thing of the past, governments are right to worry that people are not saving adequately. If nothing is done, as we have noted before, “future budgets will be bloated by the demand of well organized seniors for the government to make up the shortfall in their savings.” So it’s good that this issue is now coming to the fore.

Second, as Ponnuru argues, the way that blue states are trying to tackle this issue leaves much to be desired. The regulatory problem in American governance isn’t just over-regulation of the private sector, which conservatives point to regularly—it’s also the under-regulation of the public sector, which all too often is able to get away with accounting mischief and general incompetence. Any new automatic state-run IRA scheme should be subject to the same (if not more) rigorous accounting standards as those that apply in the private sector. That is not the case with most of the new state plans.

Third, it’s not sufficient for the Republican Congress to simply strike down the Labor Department regulation promulgated by the lame-duck Obama administration to green-light plans in Illinois in California (although it should do that). Legislators should fundamentally rethink how the government can best encourage retirement planning and saving in a 21st century economy defined by job-hopping and gig work, and pass legislation to that end. This could involve funds for training students in financial literacy; new kinds of tax incentives for young people; regulatory changes that ensure that money is managed responsibly and transparently; and federal guidance setting the boundaries for state-level experimentation.

Fortunately, there are stirrings of legislation along these lines among some GOP Senators. We will be keeping an eye on future developments.

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  • Andrew Allison

    Whilst the post correctly points out that the last place anybody should invest their savings is a State-run plan it overlooks the real problem, namely the unwillingness of Americans to save for retirement: about one-in-three of those eligible to participate in existing 401(k) plans don’t. Perhaps, before turning the State foxes loose in the 401(k) hen-house, some effort should be made to find out why people don’t save and encourage them to do so. This should perhaps start with the SSA loudly proclaiming that SS is a safety net, not a retirement plan (how many people think that they don’t need to save because SS will take care of their retirement needs?). If, for example, people were reminded on a regular basis of the huge gap between what they need for a comfortable retirement and their SS benefit, patterns might change. The other factor which needs to be emphasized is that, absent reform of SS, current estimates are that benefits will be reduced by 21% in 2034 (rising to 26% in 2090).

    • rheddles

      Proclaiming SS is a safety net is spitting into the wind. End it. That will make people think about how to provide for their retirement.

      • FriendlyGoat

        Where the heck were you when the GOP wrote a platform?

        • Proverbs1618

          When revenue grows at x% a year and costs grow at y% a year and y>x, what do you think MUST happen eventually?? but it’s OK, we are all good liberals and know that there’s a magical money tree out there that will provide what we want.

          • FriendlyGoat

            Rheddles suggested ending (ending) Social Security. You’re on board defending him. If your mouths wrote the GOP platform, we would all be better off. Your excellent wits could have so easily convinced the electorate of important matters.

          • Proverbs1618

            Who cares about my wit or lack thereof? Social Security going bankrupt is what CBO tells us will happen. Because that’s what happens in the scenario I described above. The fact that you and your kind refuse to acknowledge that reality is why I made a reference to a magical money tree. Get it now? You seem to think that you can win a battle with arithmetic and you may very well croak before SS goes away. I’ve resigned myself to knowing I won’t see a dime of it. I’m prepared, a lot of people will listen to your soothing BS and get blindsided. Happened many times before in history, and will happen many more.

          • FriendlyGoat

            We needed you guys on the campaign trail to relate this information.

          • Proverbs1618

            People prefer to live in a fantasy land for as long as possible. But as people of Greece, or Detroit, or every other bankrupt enterprise in human history will tell you, at the end arithmetic wins. I have absolutely no desire to spend my live in a futile attempt to convince others of that. I doubt it will be a popular position. So instead I prepare.

          • FriendlyGoat

            A lot of people prepare. I’m so prepared that I can spend inordinate amounts of time screwing around with you for no particular reason. But everyone in the USA deserves to hear your bombast first hand for its indubitable effect and, regrettably, they don’t.

          • Proverbs1618

            You prepared by probably dying before the program goes bust. As long as my parents are taken care of, I could give a f$ck. But I didn’t realize dying will be seen as some great accomplishment. I mean, we all get to do it at some point.
            I also can’t help but notice that you keep focusing on the tone instead of on the argument of SS long-term solvency. You know why you do that? Because you are a coward who slinks away when confronted with numbers. It’s OK. Like I told you many times, just like I wouldn’t expect intellectual honesty from a urine soaked bum ranting on the subway I don’t expect it from you. And to your credit, you never fail my expectations.

          • FriendlyGoat

            You’re worried about everyone’s parents? Or just yours? The longer you talk, the deeper the hole you fall in. This is why I wish your comments were more publicized—–to all voters would have been good.

          • Tom

            I don’t know–they might appreciate someone who told them the truth.

          • Anthony


          • Proverbs1618

            Just mine. What hole do you think I’m falling in? How dare i think of my family? That hole?

          • FriendlyGoat

            The hole of believing we need to be concerned only (only) about ourselves.

          • Proverbs1618

            I’m concerned about how much Democrat designed Obamacare is hurting people all over.

          • rheddles

            The hole of believing we need to be concerned only (only) about ourselves.

            A hole in which you are deeply entrenched. All of your compassion signalling makes you feel good. And it helps people live for today in a fantasy world you construct for them. But it doesn’t deal with the real world of the future. Social Security and Medicare are Ponzi schemes. They’ve had a good long run and they have more life left in them. There’s a lot of ruin in a nation. But ultimately they will fail, just as the Ponzi Pensions are failing.

            Yes,I would end SS and MC. They are immoral programs that compel the labor of future generations to provide for the present so that the present can avoid planning for the future (saving). Would some fail to plan for the future? Of course. And they would live on the voluntary charity of others which would be provided. But they have no claim on others. That’s personal responsibility. Until there is an unpleasant alternative to contemplate, people will be happy to ignore their responsibility for their future. And you are happy to assist them by pursuing a Ponzi scheme by force of arms so that you can feel good about only (only) yourself. A deep hole indeed.

            But keep telling yourself how good you are and how evil I am. In the future, someone will damn you. The only question is whether you will live that long.

          • FriendlyGoat

            Dang. You guys are snotty. And, Dang. You guys are clueless that families are multi-generational, meaning that the kids and grandkids don’t despise the grandparents having a stipend and medical care. It means—–for so many in the middle and lower-middle classes 1) Elder care does not have to be a drain on the kids’ resources and, 2) Something will probably be left behind for the kids.

          • ——————————

            “People prefer to live in a fantasy land for as long as possible.”

            No truer words can be spoken.
            Humanity’s recent technologies are the most blatant fantasy….

          • Proverbs1618

            BTW, when I say people, I include myself in that statement. I live the lifestyle of probably the world’s top .1% or so. If that is not a fantasy land, I don’t know what is. I remember growing up when there was NO money for effin anything. It totally sucked.

    • ——————————

      “some effort should be made to find out why people don’t save”

      Because we live in an insanely consumer-based society. No need to spend tax payers money to figure that out….

  • Unelected Leader

    Joe Sixpack is 22 years old in 1980, and he has $100 in his pocket. Fast forward to today, and Joe (now Joe Keg) is nearly 60, and nearing retirement. Joe Keg needs $300 in his pocket to have the SAME buying as that $100 got him in 1980.
    Do you know what that inflation does? Yes, that’s right, it crushes the middle class the most – eats savings (why save at all?) and eats 1/3 to 2/5 of you yearly returns on pension plans or 401Ks

    A percent or so for manager fees + inflation = half of your returns lost right there…or more.
    This is what deficit spending does. It impedes real growth, creates dislocations and misallocations, and destroys real wealth over a 40 year work life.

  • D4x

    Private sector defined-benefit pensions became a thing of the past 30 years ago. Even those who planned and saved accordingly, would have been crushed by the housing Big Short fiasco, and zero interest rates, if they moved, after 2000 for a job that later disappeared.

  • Boritz

    The solution is to transfer all 401K balances to the treasury general fund where it will be immediately spent and replace the 401K balances with a government IOU. When account holders make draws on their accounts use current contributions to pay them. Assume there will always be enough current contributions to cover withdrawals from balances created in the past. Politicians will get to enjoy spending the money but should be afraid of a combination of voters and political opponents of ever changing the system once it is in place. Participation will be mandatory through payroll deduction. As poorly as the system will serve its participants they will never the less live in fear that it could be taken away and many a career can be made on promising to preserve it.

  • Jacksonian_Libertarian

    “it’s also the under-regulation of the public sector, which all too often is able to get away with accounting mischief and general incompetence.”

    The problem is the difference between Free Markets and Monopolies like the Government. Governments can’t be the efficient, creative, self-regulating organs the Leftists envision, monopolies lack both the Information and Motivation to be that way. This means Government should never be used for anything except those tasks that only an central Government can perform (Defense, Justice, Foreign Relations), and everything else should be done by the markets.

    As far as retirement is concerned, individual, tradable, inheritable, Social Security Accounts of about $30,000 for every natural born American (immigrants should have to fund their own SS Accounts as a requirement of naturalization), should be created from the payoff of all foreign held US Treasuries $6+ Trillion and the $2+ Trillion already at the Fed from the 5 years of “Quantitative Easing” which created $4.5 Trillion in reserves.

    Tradable: Investment bankers would bid and compete for management of the initial $9 Trillion to be managed (1,000 x $9 Billion accounts seems lucrative for the 1,000 winning bids of the bankers. Even small management fees would generate tens of millions on $9 Billion accounts.). Quarterly the worst performing bankers would lose funds to manage or be fired if several poor quarters, and their managed funds put out for new bids, and the best managers given more funds to manage. In this fashion the competition would drive better earnings for Americans retirements, and let consumers know who really is the best money managers for their private accounts.

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