Increasingly, the government is taking control of the financial decisions that will determine the quality of life we lead during our golden years — and that should concern everyone.
First, there was the failure of Social Security, which has always been more of a Ponzi scheme than a retirement program. Social Security’s old-age trust fund will be exhausted in 2035, at which point it will only be able to pay out 77 percent of promised benefits, according to the 2016 report from Social Security and Medicare trustees.
Public pension systems face similar financial difficulties, racking up trillions of dollars in unfunded liabilities nationwide. Yet, California and a handful of other states, as well as some cities, are looking to compound this error by establishing government-administered retirement plans for private-sector workers. California’s version, known as the Secure Choice program, would require employers with as few as five employees to either offer retirement plans to their workers or deduct 3 percent of their paychecks — with “automatic escalation” of up to 8 percent of salary thereafter — for investment directed by the government.
Like other government-run “auto-IRA” programs, Secure Choice was made possible by a Labor Department regulation passed during the waning days of the Obama administration that exempts such state or local government programs from the federal reporting, fiduciary duty and other protections under the Employee Retirement Income Security Act of 1974.
But Congress recently threw a monkey wrench into the plans for Secure Choice by invoking the Congressional Review Act to nullify the DOL rule for state governments, with a 50-49 vote in the Senate last week that followed a 231-193 House vote in February. President Donald Trump has promised to sign it, just as he signed a similar measure covering the local government versions last month.
This is a victory for taxpayers and true choice, for, as state Sen. John Moorlach, R-Costa Mesa, has often said, the Secure Choice program “is neither ‘secure’ nor a ‘choice.’” It is certainly not a choice for employers, who are forced to deduct employees’ pay or set up retirement programs that they may not be able to afford. Additional costs will be passed on in the form of reduced hiring or hours for workers, diminished investment in the business and/or higher prices. Secure Choice could also crowd out existing private-sector retirement plans, prompting some employers to dump their plans since employees could always join the state-sponsored system. The mammoth government investments would also create unfair competition for private-sector investment management services.
Then there is the issue of whether the state would be pressured to provide a backstop (i.e., a taxpayer bailout) if the investments do not perform well. California’s experience with its own pension plans does not inspire a lot of confidence. And, as I noted in last week’s column, the…