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OP-ED | Speaking of Underfunded Pensions, Would Your Money Be Safe in a State Retirement Trust Fund?

by Suzanne Bates | Mar 28, 2014 10:00am
(15) Comments | Commenting has expired
Posted to: Opinion, Pension

istock

It is true that collectively we are not saving enough for retirement, but the “Retirement for All” bill making its way through the statehouse is not the answer.

The bill would create a state-run retirement fund for low-income workers who would be automatically enrolled in the plan. Small businesses with as few as five employees would have to set up the deductions, which would only stop if employees opt-out, which they would have to do every two years.

Reading through the public testimony in favor of the bill is like a tour through left-leaning activists’ belief that we take a passive role in our own economic well-being. They say we have a “lack of retirement security,” the current system “denies workers dignity,” that “everyone deserves a secure retirement,” and that we need to “protect retiring workers.”

Really, what all of us need to do is take an active role in preparing for retirement — and we already have the tools at our disposal to do just that.

As the testimony from the Connecticut Business and Industry Association points out, this is not a supply problem — there are already many low-cost retirement plans for low-income wage earners to choose from. What we have is a demand problem — people are choosing not to save.

Obviously there are some people who are not able to save for retirement because they cannot afford it, but this bill does not help them. The state would not put any money into these retirement accounts, it would all come from workers’ paychecks.

This would put the state in direct competition with private financial planners and other financial institutions, an industry that employs more than 100,000 people in Connecticut.

And do we really believe that the money would be safe in the “Connecticut Retirement Security Trust Fund”? The way the state has handled its pension fund, not to mention the way the federal government has handled social security — the word “lockbox” comes to mind — does not engender confidence.

We know, don’t we, that we need to save for retirement? But our culture feeds this idea that we can put off what’s good for us and “live for today,” that we deserve to “reward ourselves” because “life’s too short.”

Sen. Joe Markley, who was one of the three Republican members on the Labor Committee who voted against the bill, said he understands the impulse behind the bill even though he disagrees with it.

“The problem is people aren’t saving, but in my mind the solution is not for the government to force people to save,” he said. “This is a kind of paternalism . . . that the government knows what’s best for you.”

Technically, the bill doesn’t force people to save for retirement, although it does force them to actively opt-out — you’re enrolled unless you ask not to be.

Under the current bill, the state would guarantee a rate of return on the investment fund. The plan is to buy insurance to cover the state if there is a shortfall. But Markley said it was pointed out in testimony before the committee that insurance like that doesn’t exist.

Without insurance, state taxpayers would be on the hook if the retirement fund didn’t perform as expected. Testimony from the Department of Labor also pointed out that the department doesn’t currently have the infrastructure in place to handle potential complaints. 

The public testimony against the bill came mostly from the business community. They were practically pleading with the state not to add another administrative burden to their already long list of state-mandated requirements.

“We have had a 401k retirement plan here at I.T. Dealers when the economy was doing well, but had to cancel it when the housing industry tanked,” wrote Carolyn Hafner, the treasurer for I.T. Dealers, which is based in North Franklin. “The administration charges alone, not to mention the enormous risk put on us by all the regulations attached to the plan through government mandates, forced us to cancel it.”

The bill has the support of several heavy hitters in the legislature. Senate Majority Leader Martin Looney co-sponsored the bill with House Majority Leader Joe Aresimowicz, and Senate President Don Williams testified in favor of the bill. So, even if it does not pass this year it is likely we will see it come up again next year.

There are other things we can do. For starters, how about financial literacy classes for high school students so they understand the importance of saving early and regularly for retirement? Or the state could partner with the private financial services industry to educate and inform low-income earners about what options are available to them.

As Sen. Markley said, “We have to behave in society like we’re dealing with responsible parties.”

If the state doesn’t start listening to its small businesses about the high cost of doing business in Connecticut, saving for retirement will get even harder because fewer of us will have jobs.

Ironically, one 69-year-old woman who wrote in favor of the bill was recently forced into retirement because her company moved to Montana.

Here’s the big picture — the more mandates we place on employers, the more they will up and move their businesses to places like Montana where there are fewer taxes and fewer regulations, and where there is still a good quality of life.

Suzanne Bates is a writer living in South Windsor with her family. While traveling across the country as an Air Force spouse, she worked for news organizations including the Associated Press, New Hampshire Union Leader and Good Morning America Weekend. She recently completed a research fellowship at the Yankee Institute. Follow her on Twitter @suzebates.

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(15) Comments

posted by: Stingy Blue | March 28, 2014  1:21pm

Suzanne, if you (and any other small business owner that can’t be bothered to comply with applicable law) would like to move to Montana, please feel free to do so.

posted by: Jim in Mfg | March 28, 2014  1:29pm

My company has 4 employees and our “Safe Harbor” plan must have a TPA do the tests and they also do the 5500 for $1300/yr.  Because we are so small our funds charge fees of 140 to 160 basis points.  By pooling our plan with many other small business there could be a significant benefit to the employees and yes some financial professions would lose some gravy accounts.
Make it voluntary by the employee and let him choose, 1. no 401k, 2. his company’s plan if they have one, or 3. state run 401k (with no guaranteed returns). It is the employees own money, so let them choose.

posted by: Matt from CT | March 28, 2014  2:18pm

>Suzanne, if you (and any
>other small business owner
>that can’t be bothered to
>comply with applicable law)
>would like to move to
>Montana, please feel free
>to do so.

Ah, that good ol’ combination of Yankee moralism, communalism, and intolerance.

And they wonder why folks “vote against their own interests” after they finish lecturing them.

posted by: Stingy Blue | March 28, 2014  3:57pm

I’m sure that a Texan who encounters someone who is against capital punishment would say the same thing.  That’s the principal virtue of the federal system - the states get to set many of their own policy priorities.  Connecticutians tend to value education, (somewhat) comprehensive regulation and (middling) social justice.  This isn’t fancy Yankee book learnin’ looking down on Ms. Bates - just a reflection of the general preferences of the folks that live here.

posted by: Salmo | March 28, 2014  11:02pm

A-h-h-h, that’s the key here, isn’t it? All those planners and insurance peddlers, and bank trust officers, etc. don’t want anyone cutting into their turf. Is our money any safer with the State as opposed to the highly hyped “private sector”? Well, I wouldn’t know but then again who gave us the “Flash Crash” and the 2008 Meltdown? Ms. Bates is an Air Force spouse? Good for you! And enjoy the military pension.

posted by: perturbed | March 29, 2014  10:22am

perturbed

“There are other things we can do. For starters, how about financial literacy classes for high school students so they understand the importance of saving early and regularly for retirement?”

That’s a fantastic idea!

Unfortunately for Ms. Bates, the more financially literate the population, the more highly they would value defined benefit pensions.

“Or the state could partner with the private financial services industry to educate and inform low-income earners about what options are available to them.”

This is one of the worst ideas I’ve heard. The financial services industry has a vested interest in keeping people financially illiterate. Their track record on this is overwhelmingly clear. Want to get suckers to buy into complex variable annuities that enrich the industry at the expense of the customers? Want to sell other high-cost, inappropriate financial instruments to an unwary populous? Just get the financial services industry involved! (Sheesh, who’s side are you on, anyway?)

“This [the fact that workers would fund their own accounts] would put the state in direct competition with private financial planners and other financial institutions, an industry that employs more than 100,000 people in Connecticut.”

The state in competition with private financial planners? Is this statement for real? A point of fact is in order: the state would not profit from this endeavor directly. The state does not compete with private industry because it does not exist to profit from its activities. (Well, at least we know who’s side the author is on.)

Does anyone else see the irony in the fact that the member of a family that enjoys (or will enjoy) a taxpayer funded Air Force pension is arguing against a self-funded defined pension option for others?

The arguments in this op-ed seem particularly thin. For a thoughtfully written opposing viewpoint, please see: OP-ED | The Truth About Pensions

—perturbed

posted by: imheretohelp | March 29, 2014  11:53am

Speak to your own preferences Stingy ...you were rude and wrong a decidedly simply but deadly combination caused by ignorance and having one’s head up ones nether region..

You obviously don’t have a small business and have never had to “comply” with the insane requirements as such.  Its small business that keep our economy going so be careful what you wish for ...if Susan and other business owners took you up on it even your nasty self might consider leaving…cept hopefully by then you would have been identified and branded as a communist liberal and forced to live in the cesspool you are creating here in CT

I miss the good old days when we had a liberal heart but a conservative mind here in out blue state…

posted by: Chien DeBerger | March 29, 2014  3:00pm

“Would Your Money Be Safe in a State Retirement Trust Fund?” - I guess I would answer this question with another question. “Was our Social Security Retirement Fund safe from Congress?”

posted by: Lawrence | March 29, 2014  8:22pm

“We have had a 401k retirement plan here at I.T. Dealers when the economy was doing well, but had to cancel it when the housing industry tanked.”

That is the very definition of why the bill is needed. Thank you, private sector person, for your illuminating testimony.

posted by: perturbed | March 31, 2014  2:34pm

perturbed

Suzanne Bates may elect not to read today’s report from CBS News. It certainly makes the “issues” raised in this op-ed seem trivial in comparison to the dire need for a new alternative.

Danger zone: America’s retirement system is breaking down

So 78% of US families have less than $100k saved for retirement? How well can any retiree live on a sustainable withdrawal rate of $4k/year?

“The shift from traditional pension plans to 401(k) plans may partly explain why the U.S. tends to fare poorly compared with many other industrialized countries around the world on measures of retirement security.

“Investment firm Natixis Global Asset Management, which has more than $867 billion under management, recently evaluated 150 nations to see which do best in ensuring retirement security and meeting retirees’ financial expectations. Examining criteria including health and health care quality, income and finances, and quality of life, the firm found that the U.S. ranks only No. 19, trailing countries such as Israel and the Czech Republic (see chart below).”

Trailing the Pack

“Experts also say the retirement system can be improved. One idea is to roll out on a national level the kind of retirement plan that California introduced in 2012. Aimed at lower-income workers whose employers don’t offer a plan, the California Secure Choice Retirement Savings Program requires employers to withhold 3 percent of an employee’s pay, with participants automatically enrolled unless they opt out. Those funds are then invested under the state’s pension system or by a private fund manager.”

—perturbed

posted by: Joebigjoe | March 31, 2014  6:25pm

Perturbed, how do you highlight and italicize within comments the way you do?

I have only seen you and Gutbomb do that, so it must be somethng you learned in progressive school.

Seriously, interesting that it’s only you two that do that, but I would like to know how as it is more appealing to the eye and allows you to better point out certain information.

posted by: perturbed | March 31, 2014  10:13pm

perturbed

Hi Joebigjoe,

Funny thing is, Gutbomb and I got off on the wrong foot. (He was in favor of SEBAC 2011 and I was, well, more than a little perturbed by it.)

Anyway, always happy to share information. The more we can all learn from each other the better. Sticking to the facts and being as honest and accurate as possible is important.

Here are a couple of things I learned for this site.

There are several text effects you can produce by bracketing the text with certain characters: < x >text< /x >. (Don’t put spaces between the symbols—I just had to do that to get them to print.)

Now, just replace the “x” (which, to my knowledge does nothing) with the following letters or words to produce these effects:

b = bold
i = italics
blockquote = a shaded box around the text

To produce readable links, just use the syntax shown in the example in this link:

HTML < a > href Attribute

What’s in the quotes is the actual url of the webpage you’re linking, and what comes after that is the legible description of what it is you’re linking to.

It’s always helpful to provide live links to trustworthy data to support a point. Just be aware that a maximum of two links are allowed per comment on this site.

This all takes time, and it’s kind of a pain. Plus, I’m a terrible typist, so it’s extra slow for me. But I agree with you, these things can help to get a point across without resorting to THE EQUIVALENT OF YELLING.

Hopefully we can all continue to learn…

—perturbed

posted by: DrHunterSThompson | March 31, 2014  10:41pm

DrHunterSThompson

Perturbed,

You continue to be the most accurate and well read contributor to this site.  Once again, well done.

Twist one up! Celebrate your accomplishments!

HST

posted by: Art Vandelay | April 1, 2014  9:17am

@Preturbed,
I believe the more people are financially astute the more they would realize defined benefit packages are a burden to taxpayers.  They’d realize what defined benefit packages did to Detroit which will eventually happen in Connecticut.  The state needs to transfer away from defined benefit packages in favor of 401K’s and FAST!  Unfortunately it will never happen because the UNIONS control the legislature & Democratic Party.
Arn’t defined benefit packages actually amortized annuities?  Why anyone in their right mind would trust the government with a personal retirement account is beyond my comprehension. All I have to look is what the Government did with Social Security, the greatest Ponzi Scheme known to man.

posted by: perturbed | April 1, 2014  8:38pm

perturbed

Art Vandelay wrote:

“I believe the more people are financially astute the more they would realize defined benefit packages are a burden to taxpayers.  They’d realize what defined benefit packages did to Detroit which will eventually happen in Connecticut.”

Art, first of all, the subject bill would not be financed by taxpayers but by the participants of the pension fund. Secondly—and we covered this in a previous op-ed comment section—Detroit was not brought down by it’s pension obligations. From the 12/04/2013 NPR story, Despite Detroit And Illinois Pension Deficits, Cities And States Aren’t Bad Off:

SIEGEL: Detroit, evidently, has about $8 billion of unfunded pension obligations. That’s a lot of money, but your center ranked cities by how burdensome public pensions are. And I gather Detroit didn’t even make the top 50. Is that right?

MUNNELL [director for the Center of Retirement Research at Boston College]: That’s right. Detroit has a lot of financial problems, but at this point in time, pensions are not one of them.

—perturbed