Friday, November 2, 2012

California pension plan is a bad trend?

Editorial: California pension plan is a bad trend: "Now, California lawmakers are hoping to start a new trend: states managing retirement funds on behalf of private-sector workers. In September, Gov. Jerry Brown signed a law creating such a fund. . .On its surface, the California plan might seem enticing. Employers would divert at least 3% of their workers' salaries into a state-administered fund for which private money managers would make investment decisions. At retirement, workers would receive a monthly benefit based on contributions and investment returns, with the state guaranteeing a minimum rate of return. But there are two potentially problematic outcomes. One is that the fund will behave like the great majority of publicly run funds, becoming more and more generous as beneficiaries form an organized political constituency and demand more. That has certainly been the case with Social Security. The tax on workers and employees that funds it has been increased 19 times and more than sixfold (from 1% to 6.2%) since the 1930s. And even that has not kept up with the steady growth in benefits. Retirement plans for state and local employees are causing larger problems. They have grown so generous as to put a number of states, including California, into deep fiscal turmoil. Given that track record, it is not difficult to imagine participants in California's new plan lobbying for an increase in the guaranteed rate of return, or even transforming the program into a traditional defined benefit pension, where annual payouts are not based on returns but on the final salary a worker enjoyed."

Actually California is trying to rectify a situation that should be solved at the federal level-- 1) ABOLISH all pensions; 2) allow self-funded, tax-exempt retirement accounts by everyone, with mandatory default 5% direct deduction from employee pay into account of employee's choice at any federally regulated institution; 3) broadening Social Security to include everyone--President Roosevelt envisioned this at the time Social Security was created.


No comments: