Out-of-State Economist Calls For Creation of Public Retirement Accounts
by Hugh McQuaid | Apr 27, 2012 1:18pm
(4) Comments | Commenting has expired
Posted to: Business, Town News, Hartford, Labor, Legal, Pension
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.
Tags: Pension, state employee, 401k, IRA, defined benefit plan, hugh mcquaid, dh
(4) Comments
posted by: mpalmer | April 27, 2012 4:11pm
Senator Guglielmo, who is president and owner of the Penny-Hanley & Howley Co., Inc. & Staffordville Insurance Agency in Stafford,
http://ctsenaterepublicans.com/about-guglielmo/
http://pennyhanleyhowley.com/
D. Anthony Guglielmo
Agent and Owner
Tony purchased the company in 1968. He has been in the insurance industry for four decades.
We offer one-stop shopping for a full range of products, including home, renters, auto, business, life, health, and retirement plans.
posted by: GMR | April 27, 2012 5:42pm
Wow, this is really a crazy proposal. Most big companies have done away with defined benefit plans, and many governments are scrambling to get out of them as well, because they can be very expensive.
Here, the state would essentially be taking on a huge risk, which would be borne by people in 20, 30, 40 years, whatever, that it didn’t have the funds to make the payments to the retired workers.
Next, it assumes that the pension fund managers employed by the state of Connecticut could beat the professional money managers.
Seriously, why should the state get in this business? I think the real reason is to provide cover for the public sector workers..
posted by: perturbed | April 29, 2012 9:08pm
This is an interesting concept. Unquestionably, defined contribution plans don’t work for the vast majority in this country. People don’t have a clue how much they really need to be saving, and few could afford it if the had a clue.
And, sorry, the idea that we should eliminate defined benefit plans for those fortunate (and/or wise) enough to have one—just because most businesses have axed them to maximize profits—makes no sense. So yes, in concept this merits some thought.
Here’s the problem I see: put any pool of money that large together and it’s an invitation for graft and corruption. The entire endeavor would have to be completely transparent, and based on a passive investing strategy. That would keep costs to the absolute minimum, and leave crooks no place to hide.
Unfortunately, that’s not what Ms. Ghilarducci has in mind.
“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.”
So far, so good.
“Everyone could have access to professional managers…”
Ruh-roh, Raggy!
“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.”
Exactly correct. Costs are a huge part of the problem.
”...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…”
Good grief! Think that will come for free?
The allure of this concept has absolutely nothing to do with “best money managers on the planet,” private equity, or hedge funds. Who’s she gonna get for us, Warren Buffet? David Swensen? Get real. This is nothing but code for spending a fortune on (futile) active management.
No the real “benefit” that a defined benefit plan would offer is the ability to spread risks across thousands or hundreds of thousands of people, and across time (generations), rather than an individual’s own lifespan. Oh yeah, and rock-bottom costs.
Unfortunately, Ms. Ghilarducci’s plan could end up being nothing more than a boondoggle designed to create a plump new host for the leeches (money managers). A state-run (not-for-profit) plan that needs to hire expensive money managers is hardly not-for-profit!
—perturbed
posted by: jenand | April 30, 2012 9:28pm
My opinion is that this is a GREAT idea -the 401K was created by GW or his Dad, with intent to privatize Social Security. How do regular workers understand all the implications, including investing in Credit Default Swaps, inflated value Real Estate bound for loss of its value, and foreign markets that benefit American Conglomerates. A huge ripoff. If your taxable income is reduced by the amounts you contribute, your Social Security will be based on lower income amounts. Everyone who’s making money benefits - the average worker ? Soap on a Rope