From the Department of Crazy-Sounding Ideas Dismissed Too Quickly: Democrats recently introduced new legislation that seeks to provide pension plans for private sector workers.
Given the huge unfunded obligations that California governments have incurred for the existing pension obligations for public workers, this idea has been quickly dismissed in public debate. Over at Calwhine.com, Chris Reed wrote that it wasn't even worthy of being called "half-baked;" those who introduced it, including Democratic leadership in the state Senate, are completely baked.
That reaction is understandable -- but completely backwards. This legislation represents an opportunity -- indeed a model -- that should be embraced by everyone, from conservative critics of pensions to liberals determined to preserve retirement security.
Here's what everyone is missing. While this proposal offers a modest, low-risk pension plan for private workers, it has even greater potential as a new, smarter, safer approach to pensions for everyone -- including public sector workers.
Because this is a private sector plan, Democrats proposed it in a way that would limit risk -- exactly the kind of outsized risk that is contained in existing public plans. Under the legislation, businesses with more five or more employees would be required to enroll employees in a state "personal pension plan," or offer an alternative plan of the employer.
Employees would contribute 3 percent of their pay via payroll deduction. Employers would not have to match those contributions. And the fund would be managed conservatively, with investments tied to US Treasury bond rates. Losses would not be covered by the state, but by the private underwriters of the plan. Another advantage of accounts like this -- they could conceivably be made portable, so that workers could take them from job to job.
If only this were the basic structure of the public pension system. Instead, that has big employer contributions and taxpayer support in the event of losses. And CalPERS, rather than having a low-risk discount rate tied to treasuries, sets a discount rate of 7.5 percent; they are just so confident that they can do that well in the markets.
Which is why this is an opportunity for those worried about pension obligations and retirement security. Such folks should step up and say this is a much better system -- which preserves pensions and defined benefits and replaces the risky, deferred salary public pension system that is such a risk to taxpayers, and thus puts governments on a much more solid footing.
Some of the politicians offering up this proposal have been the strongest defenders of the existing public system. By proposing this for private workers, they are offering -- probably unintentionally -- a path not only to providing more security for people in the private sector, but a better system for the public sector as well.