Out-of-State Economist Calls For Creation of Public Retirement Accounts
A retirement security economist was advocating a bill Thursday that would create a taskforce to consider establishing a state-run defined benefit plan for private citizens.
Teresa Ghilarducci, author and labor economist at the New School in New York City, said the bill sets up a commission to address the retirement security problems of everyone in Connecticut.
“It kind of lifts up the problem away from a public sector worker and their pension plans and whether or not they have too generous a pension or not. It looks more broadly at everyone who lives in the state to say ‘what do they have?’” she said.
Ghilarducci said her preliminary research found that many middle class workers in Connecticut don’t have enough retirement savings. She said the state should allow them to invest in the public employee pension fund, which is a defined benefit plan.
When California moved to address the problem, Ghilarducci served on a similar commission in that state. The commission led to a bill to open the state’s public sector pension plan to all Californians. That bill recently passed out of a legislative committee and is expected to pass this year, she said.
“I think that system is good. When we talk about healthcare reform we talk about medicare for all — everybody could get it. This is actually like that. Everybody could have a retirement. Everyone could have access to professional managers,” she said.
Ghilarducci said part of the problem workers face is that 401(k) and IRA accounts are some of the worst places to save money. She said those retirement plans are very expensive, often having undisclosed fees that can take as much as 20 or 30 percent of the retirement money.
“They’re run by for-profit entities and it’s just a shame that people are forced to go there when there’s this non-for-profit, highly professional — best money managers on the planet who invest money for big institutions — they don’t bother with the retail market,” she said.
Sen. Tony Guglielmo, R-Stafford, voted against the bill when it was before the Labor Committee last month.
“Why would the 3.5 million people in Connecticut have the confidence that we’re going to do a better job?” he asked, considering the difficulty the state has funding the state employee pension fund.
Guglielmo said the state would also take on liability if it became the fiduciary manager of private sector workers’ retirement plans. In that situation, sovereign immunity, a statute preventing the state from being sued, would not apply, he said. The state would have to guarantee its compliance with federal regulations, he said.
“It’s huge risk on the part of the state of Connecticut,” Guglielmo said.
Ghilarducci questioned whether a state fund has ever incurred a penalty for failing to comply with regulation. She said penalties are much more likely to occur in the private sector.
However, Guglielmo said that the amount of work the state would have to do to comply with federal regulations would be the same as what a private company would require.
“I don’t see where the big savings are going to be from an administrative standpoint from the state,” he said.
Ghilarducci argued that that’s a misconception because states are able to invest their money on a more massive scale and can get lower fees.
“Every study over the past 35 years proves that that perception is wrong,” she said.
But the likelihood the legislature will tackle the issue this year is slim.