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 pension funds have often discarded fiduciary duty in favor of ideologically motivated investing, costing taxpayers billions of dollars. Secure Choice could be subject to the same political motivations.
“Today, 55 million working Americans do not have a way to save for retirement out of their regular paycheck,” AARP board member David Walker argued in a March USA Today column in support of the DOL rule. But this argument is highly disingenuous. The 55 million figure refers to those whose employers do not offer their own retirement plans, but this is quite different from “not hav[ing] a way to save for retirement out of their regular paycheck.” Anyone with access to a telephone or an internet connection can sign up for an IRA or an annuity and contribute a portion of their paychecks to those investments on their own. They do not need the government to hold their hand — or force them to do so.
Besides, some people, particularly those living paycheck to paycheck, rationally determine that that extra 3 percent or 8 percent of income today is preferable to future invested funds because they need to pay bills or put food on the table. In any case, shouldn’t individuals have the right to make those “money today vs. money tomorrow” decisions?
As we have seen in so many other areas, ceding more responsibility — and more control over one’s life — to the government is a dangerous prospect. We should be able to determine our own futures, and plan for them accordingly — without government interference.
Adam B. Summers is a columnist with the Southern California News Group.