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Stop Congress from Killing Retirement Savings for Low-Moderate Income Workers


#1

Stop Congress from Killing Retirement Savings for Low-Moderate Income Workers

John Chiang, Kevin de León

CALIFORNIA — After eight years of collaboration between senior and consumer advocates, business, and labor — is on the cusp of providing greater retirement security to 6.8 million private-sector wage earners.

But, suddenly, the state’s pioneering “Secure Choice” plans are under siege.


#2

So why in the world would you not publish the names of the two republican senators supporting a bill to eliminate "Secure Choice"? It would better support your article.


#3

Name names! Who are the two repubs?


#4

“Our nation faces difficult retirement challenges, but more government isn’t the solution,” said a statement from Rep. Tim Walberg (R-Mich.), chairman of a House subcommittee on retirement issues who is taking a lead in the repeal effort.

Good question, so I tried to find out. I wonder if this is some kind of ALEC/Koch sponsored legislation, because I found lots of references to the GOP, but only one name. The bill targets other states, too.


#5

We are also, now, subject to not receiving any Interest on our Savings, interest that at one time contributed, in no small part, to our overall financial wellbeing.

We are allowed to be charged astronomical interest on Credit, yet given uselessly small fractions of a percent on whatever we may manage to put aside.


#6

From California to Texas, the ReTHUGlicans are putting up legislation to kill off any good reforms that might focus on helping the lower half of the working class and those already living in, what anyone with a heart would consider, poverty. Ted Cruz has worked his slimy weasel self back into the limelight, the RICH limelight at least, and is supporting any way forward to stop all protections for consumers. It is only those wealthiest people in these United States that seem to have ANY RIGHTS to live and act and have their beings inside these borders today. The all out attacks upon the entire working class is simply the writing on the wall of decay for the USA. The Pyramid cannot stand, once the base of the Pyramid is crumbled by the hands of powerful ELITES. They too, will eventually fall under their own rule of law. The WORKING CLASS had better wake up and unite, because WE are all THEY'VE got.


#7

I worked for 7 years in retirement plan administration. I don't really know much about the plan that is being targeted but I feel comfortable saying that our current retirement "system", which depends almost entirely private savings, does not work. Problem one, you have to have some money to save and too many people don't. Problem two, you have to understand the stock market or have a way to get good advice, and most people don't have access to good, unbiased advice (or even to know if the advice they are getting is good). I am afraid that we are going to have a lot of baby boomers and Gen X's retiring in poverty.

Frankly, I am for expanding defined benefit plans (ie old, fashioned pension plans) and Social Security. We don't really need another variant on the 401(k) or IRA tax shelter.


#8

Call your 3 MOC's(Members of Congress) today to tell them to RESIST tRump overturning the Fiduciary Rule due to go into effect on 4/10/17. This is the rule where financial advisors must act in your interest and not their own. It protects workers and retirees from inappropriate high-fee investments that erode your savings. Capital Switchboard: 202-224-3121


#9

Who needs "advice"? You can invest in a Total Stock Market fund with very low expenses and no sales charges at Vanguard, Fidelity or T. Rowe Price. Just start investing as early as you can, hold on to it and you will outperform most managed funds over the long term. Pensions are nice but if you don't have one, people can manage their retirement themselves.


#10

I found this article to be incredibly confusing and misleading. First, how is the program going to be no cost to taxpayers and no liability to employers? If meant in a literal fashion then, yes, the program is not an accounting liability to employers because they are making what seems to be forced annual contributions, which in accounting treatment is an expense, not a liability. But employers still have to pay in to the system. It just forces them to leave aside money for a retirement program they otherwise wouldn't have. So how can this Treasurer imply that this program is not going to increase costs for companies?

And now everyone will be up in arms with me claiming that it should be a "right" to have an employer-based retirement plan. False. Very false. Compensation in the form of a defined benefit pension plan is simply foregone wages that the employee would have otherwise received. It's just a shifting of the buckets that make up the total compensation package. So if you force a company to make contributions to a retirement program that it otherwise wouldn't have made, the result will be either a decrease in wages or a decrease in employment. Money cant spawn from nowhere. It's the same concept as a minimum wage.

Instead, if people want to have a retirement account, no one is stopping them. There are numerous private options available for you to put your savings. Personal responsibility is the key.

And if the issue is that you don't have any disposable income to save, understand that this program doesn't solve that issue if (1) the savings contribution is effectively taken out of wages you otherwise would've received, or (2) you are laid off or (as an already unemployed individual) have difficulty finding a job because this program made hiring workers even more expensive.

When a politician implies that a mandate related to wages and income will be "free," it should always raise a red flag.


#11

The burden on employers is to automatically enroll their employees. The burden on employees is to opt out. The employer makes no contribution. So there are small costs in terms of pushing paper, or making keystrokes. There's likely a fund management cost; one would hope that's being drawn out of the profits and at a fair price. All in all the benefits of having retirement savings compared to the small costs associated with it, appear to be less risky than not saving and entering old age with no retirement savings.


#12

Well on their website they say that they hope employers would make contributions, as well.

But even if they don't, why do we need a government bureaucracy to create separate retirement accounts when private companies provide this service already?

Plus this doesn't give anyone any new retirement security beyond what they could already be doing with their savings. It's just a public option to crowd out private companies. Under your scenario, it seems completely unnecessary and borderline predatory to the private sector.


#13

If I remember correctly, the private investment sector recently crashed the global economy, taking millions in pensions with it and because of predatory practices.

If the elected representatives of the people in a state choose to do this, why is Congress interfering unless it is at the behest of Wall Street?


#14

I like index funds myself, but that's not really what I meant. Even knowing what I mean by "index funds" requires a certain amount of financial education. 401(k) administrators have only a limited incentive to provide you this information - if anything mutual fund companies have incentives to steer you towards products that profit them.

If there is anything I learned in that job it is that money makes people really anxious and vulnerable to bad advice and fads.

Personal responsibility is well and good but if large number of people end up in poverty in their retirement years we will all pay.


#15

Are you kidding me? Ever heard of the concept of Fractional Reserve lending? Banks create money every time they make a loan and it's "made" when they do a digital "deposit" into your account. And they can "make" 9 times more money than they have in their reserves! The trillions of dollars of debt of your country? Spawned from nowhere. Simply digital transactions done by the banks.


#16

You are missing the point about who this program is designed to help. It simply offers a way for employees to save through a payroll deduction if they work at a company that doesn't already have that built in. Employers are in no way required to contribute to the plan. In fact, that is specifically PROHIBITED in this case because there is already a federal law prohibiting employer contributions for this type of savings. If an employer wants to contribute to their employees retirement, then that is encouraged - but it happens through the current methods.
Yes - it is a public option. But only an option in cases where the employer refuses to allow private options to happen.


#17

Honestly, I'm still a little confused then. How does the payroll deduction work?


#18

If a company already has a program that allows employees to set up an automatic retirement deduction then they are exempt from the "Secure Choices" program (though they can participate if they want).
If a company does not have any kind of automatic retirement deduction in place then they have to set one up under the "Secure Choice" umbrella (big companies have to do it by 2020, small companies have an extra year to comply).

An employee can opt of the program if they want at any time. Once they opt out they can only opt in during specific enrollment periods. The deduction is set at 3% of salary by default but employees can change that during enrollment periods.

Not really a big government intrusion in anyway that I can see. (keeping in mind that every business already has to handle deductions)

Where the funds are invested starts out in Federal bonds for the first three years - then the board that will govern the program can move to some other types of investments but they can never be risky ones. The same board is also required to set up the penalty for early withdrawal.


#19

Thanks for the detailed clarification. I understand the program much more clearly now. The main issue was that the Treasurer was quite limited in his explanation in the op-ed.

My thoughts are still similar to what they were previously:

  1. I'm concerned that this program crowds out private options because it is always difficult for private companies to compete with a public option that can't go bankrupt.
  2. The program sounds like it is way too risk averse. An investment of a retirement account solely in fixed income securities is not exactly a sound investment strategy, especially for younger individuals. This doesn't mean that it shouldn't be allowed, but if this public option crowds out other private options, it limits the scope of choices available to only an incredibly risk-averse option.
  3. I agree that on a company basis, this is not a big ask to add a new deduction. It's just an administrative hassle. But I don't run a business so I don't know how difficult and expensive that would be for a small company vs a large one to administer.
  4. This program is touted as "free" for CA taxpayers, but who's paying these new employees of the bureaucracy running the program?
  5. Is there cap in income as to who can join the program? I clearly understand that it is for lower income jobs, but if this program grew to truly crowd out most mainstream private options, that would be a serious problem.
  6. And I still don't understand why it's even necessary. What is stopping these employees from setting up their own IRA or Roth IRA account with the same 3% of their earnings?

#20

I am a Democratic Socialist so I have no problem at all with public options crowding out private companies - especially if they do a more efficient job. However I don't see your argument anyways since this is not a defined benefits program and is just administering individual accounts. If you are saying that a private company will take the funds in this individual accounts and use them for their own profit making purposes which exposes them to the risk of a company that goes bankrupt - then I'd say that is all the more reason to have the public option.

I overplayed the risk aversion part a little. After the three-year run in, the board is expected to provide several plans that would be suggested based on age. I wouldn't expect the kind of risk that young people with private annuities might take - but certainly the kind of 5-6% per year stuff that state pensions go for.

Yes - completely free for taxpayers because the money to run the fund comes out of the payroll deductions. It won't go over the private market though (which is even 0.5% fat a minimum or pure index funds).

Finally, it is not easy for poor people to save in the way you suggest when their employer does not offer an automatic deduction option. A $10/hour employee would be contributing about 30 cents per hour or about $12 per weekly paycheck. Do you really think they can easily just run down to their local financial institution and wait in line to deposit that amount in their IRA? Retirement savings only becomes practical with the automatic deduction.