In the United States, federal, state, and local politicians are responsible for accumulating a combined $22.4 trillion of debt. Federal unfunded liabilities including Social Security and Medicare are estimated in the $100 trillion range. Nationally, state and local government pension plans face upwards of a $5 trillion funding gap.
With these statistics in mind, the idea that politicians would tell us how to plan for our financial futures is laughable… but they do, time and again.
The latest example is California’s new proposal that will create a mandatory state-run pension program for employees at companies that do not currently offer retirement benefits.
Under this plan, dubbed the Secure Choice Retirement Savings Program, companies with five or more employees would be required to enroll their workers in the program and deduct 3 percent of their earnings from each paycheck.
The state would then decide how to invest this money. Initially, the money would go into U.S. Treasuries, but, as the program evolves, the program administrators will decide what other investment options to offer workers, as well as who will manage the money.
Luckily, workers can opt out of the program, but according to the New York Times, “lawmakers hope that by requiring companies to enroll all of their workers automatically, and leaving it to the workers to take the extra step of opting out, most people will get into the habit of saving for retirement, even those who now live paycheck to paycheck and do not think they can save.”
In other words, not only do California politicians think that people are too stupid to save and make plans for retirement, they are also too lazy to make any effort to opt out of this program.
Ironically, California is a model of how not to plan for the future. CalPERS, California’s state pension plan, is underfunded to the tune of 77 percent. As the Los Angeles Times notes, “years of overoptimistic stock purchases and inadequate contributions have left it terribly vulnerable.” Without an “overhaul,” the Times says, CalPERS will require a taxpayer bailout to remain solvent.
To add insult to injury, former CalPERS CEO Federico Buenrostro was recently sentenced to 4 1/2 years in prison for taking over $200,000 in bribes and trying to steer investments to benefit investment manager and former CalPERS board member Alfred Villalobos.
At the municipal level, things don’t get any better for Californians. Much like Social Security, local budgets are caught in a death spiral. Increases in the number of government employees drawing a pension has gone up nearly 50 percent over the past decade. In other to keep up with these ballooning legacy costs, local governments are going to have to cut services and employees, meaning even fewer people paying into the system. Sooner or later, this Ponzi Scheme is going to come crashing down.
Unfortunately, as we have witnessed with Social Security, retirement funds are an attractive target for politicians. As California’s Wall of Debt continues to climb, will the state “borrow” funds from the Secure Choice? Or could the program be merged with the state’s employee pension plans?
On the other hand, even if this never happens and Secure Choice works as advertised, the program is just another example of the nanny state at work. Politicians think that they can save—or spend—the taxpayers’ money more wisely than the taxpayers can. This notion runs counter to liberty and individual choice.
The opinions of politicians notwithstanding, people should be free to do what they wish with their money. Sometimes, we make wise decisions. Other times, our decisions are not so wise. Nevertheless, it is our decision, and that’s what freedom is all about. As Gandhi said, “freedom is not worth having if it does not include the freedom to make mistakes.”
Besides, when an individual makes a mistake, it generally impacts only that individual and their circle. When mistakes are made by policymakers, the results are disastrous for society at large. As we have seen time and again, government is not infallible. In fact, because market forces such as competition and price are absent when the government gets involved, policymakers often do not even have the information necessary to make sound judgments.
Contrary to its title, the Secure Choice Retirement Savings Program limits choice and may prove to be anything but secure.