A few crumbs for private workers
The minimum-wage boost surely will stifle the economy and exacerbate teen unemployment, but it could at least theoretically be undone. The quickly advancing new retirement program — similar to other programs floated in other states — means creating another state-run boondoggle that probably will never go away.
In 2012, Gov. Jerry Brown signed into law a measure that creates the groundwork for the California Secure Choice Retirement Savings Plan — a new retirement-savings system for 6.8 million private-sector workers not offered such benefits by their employers. Legislation still is needed to put the specifics into place. Treasurer John Chiang said California is “set to herald in the most significant change to retirement savings since Social Security was enacted as part of President Franklin D. Roosevelt’s New Deal in the 1930s.” Be very afraid.
Secure Choice boosters point to a genuine problem — half of Californians are on track to retire in dire straits. Private-sector workers generally have meager savings. But the plan not only misses the main point (the state’s tax-and-regulatory policy chases good jobs with benefits to Texas and Nevada), it also offers a “solution” that is astounding in its hypocrisy. This isn’t so much about helping private workers avoid poverty, but about keeping bloated public-sector pensions funded — while muting criticism of their excesses.
“The program would require private employers with five or more employees not currently offering a retirement savings plan to provide their employees access to, and payroll deductions for, Secure Choice Retirement accounts,” according to a feasibility report issued March 17. Secure Choice will take 2 percent to 5 percent of their earnings. Workers would invest in IRAs they would own. Taxpayers are kept off the hook. The dollars would automatically be withdrawn, but workers could opt out of the program.
State officials certainly have moxie. As of 2014, California’s unfunded pension liabilities were $170 billion, according to a new study by Wayne Winegarden for the Pacific Research Institute. With additional risk taken into account, those numbers can soar to $600 billion, threatening to crowd out services and stifle economic growth. The same officials who refuse to rein in the pension debts they created presume to fix the pension problem for everyone else.
The state predicts a 7.5-percent rate of return for its pension funds. The higher the predicted return-rate of these investments, of course, the richer the benefits public employees can receive and the lower the forecast level of debt. The state assumes an unrealistically healthy rate of return for its own employees, who receive defined-benefit plans, but private workers would receive defined-contribution investment funds that may be tied to low-return Treasury bonds. That inconsistency gives insight into what this is about: providing a few crumbs for private workers as a way to mute their criticism of the enormous pensions enjoyed by their masters.
As I’ve reported, this idea was detailed in 2011 by then-Treasurer Bill Lockyer, a Democrat with close union ties. Five years ago, political pressure was building to reform the state’s overburdened pension system. Speaking to the Northern California Public Retirement Seminar, Lockyer noted that few private workers have a decent retirement plan while government employees can easily receive pensions that exceed what they earned on the job.
Instead of thinking of pensions in terms of just “financial” sustainability, he suggested that we also think of them in terms of “political” sustainability. “(I)t is not hard to see why we are dealing with a very serious and virulent strain of pension envy,” he said. What to do aboutthis envy? He outlined a program very much like Secure Choice: “What I’m thinking is that it would be a very smart political and policy move by those who want to keep defined-benefit public pensions to link the move for pension reform to a demand for a meaningful retirement-security option for California private-sector workers.”
In addition to its political benefits, Secure Choice also likely directs a large portion of the private-sector payroll to state pension officials, who often invest in ways that meet their pro-union political agenda. It gives them an enormous amount of money at their disposal.
Secure Choice will impose costs and headaches on private companies, of course. It will crowd out private companies that are involved in this business. Many of these lower-paid employees are barely getting by, as it is, and would have to go through hurdles to opt out of the program if they don’t want to be part of it. If the state sticks to the original plan, it won’t offer much in the way of benefits. In his speech, Lockyer called 401(k) plans “an abject failure.” Yet that’s basically what’s being offered here, although with talk about turning it into an annuity at retirement.
There’s always the other fear: Once a program is put in place, pressure will mount to expand it and begin offering more generous returns. The law forbids the use of taxpayer funds to backfill investments. But look back at previous pension-related promises. In 1999, the California Legislature rammed through S.B. 400, which set the stage for years of retroactive pension increases. The California Public Employees’ Retirement System (CalPERS) promised the massive benefit boosts would pay for themselves. Instead, the law imposed a crushing level of debt on state and local taxpayers. And who has to recount all the unfulfilled promises made by advocates for Social Security? Who expects today’s promises to be any better than past ones?
California officials certainly don’t understand basic economics, which might explain their minimum-wage foolishness. But they probably know what they are doing with this Secure Choice program, which is to create a program that’s more about the “political sustainability” of outsized public-sector pensions than about helping private workers.