It is often said that bad ideas are never truly defeated in the legislative process; they simply remain dormant until being resurrected in a different form for a future Legislature to debate.
House Bill 3436 is one of those very bad ideas. It was introduced and deliberated during the 2013 Legislative session to establish government-sponsored retirement plans for private sector employees.
It was strongly supported by State Treasurer Ted Wheeler as well as by the Service Employees International Union (SEIU) and the American Association of Retired People (AARP). In fact, Wheeler was presented with the “2014 Legislator of the Year Award” by the National Conference on Public Employee Retirement Systems for his strong advocacy for their policies.
HB 3436 was promoted under the guise of providing private sector employees with opportunities for better retirement security. That concept may certainly appeal to the uninformed who may be anxious about their long-term financial stability.
However, a variety of thriving tax-deferred retirement plans is already available to anyone who wishes to participate. An entire private sector, free-market industry contends to match the best individual plans with each family’s goals. Market competition ensures the most effective retirement outcomes.
In its original form, HB 3436 did not have enough votes to pass in the Senate. For that reason, it was amended into another version that was passed, signed into law and established the Oregon Retirement Security Task Force. The task force was appointed by Gov. John Kitzhaber, spearheaded by Treasurer Wheeler, and charged with making recommendations to the Legislature on ways to enhance retirement security for workers, especially those in the private sector.
The amended version of HB 3436 passed on largely party-line votes. I was among those who voted against it because I strongly believe it is taking Oregon in the wrong direction.
This very flawed idea will undoubtedly return for Oregon’s 2015 legislative session, where Democrats will have firm control of both the House and the Senate.
The actual real-world implementation of this concept almost certainly has underlying motives that are not as altruistic as its proponents suggest. In fact, one might wonder why the largest public employee union in the nation, SEIU, is so deeply concerned with private sector retirement benefits.
In 2012, California Governor Jerry Brown signed into law Senate Bill 1234, otherwise known as the California Secure Choice Retirement Savings Trust Act. That bill will eventually require all businesses that have five or more employees, and that do not already offer a retirement plan, to automatically enroll them in a plan. The plan will be funded by a three-percent payroll deduction paid by the employee. In its current form, employees are able to opt out of the plan.
The funds created by the payroll deductions will be managed and invested by CALPERS, California’s public sector retirement system, or by another unidentified contracted organization.
What could possibly go wrong with this scheme?
For starters, CALPERS has a very poor track record of managing the public employees’ retirement assets. Three California cities–Mammoth Lakes, San Bernardino and Stockton– have already filed for bankruptcy caused by retirement system insolvency.
In fact, huge infusions of cash may be required to maintain the solvency of their entire public sector retirement system. Where better to find the source of that critically needed funding than within the very vibrant and solvent private sector retirement plans?
Comparable proposals with very similar themes have been put forth by SEIU and AARP in several other states. They begin with voluntary automatic payroll deductions that could eventually morph into mandatory participation. The expected next step would be to require matching employer contributions. Strong efforts would be made for management of the funds by existing public sector retirement funds such as CALPERS or Oregon’s Public Employee Retirement System (PERS) to avoid the expense of duplication.
Anyone with enough foresight to be considering their long-term retirement goals already has many options available to make that happen. So why should it become necessary for the state government to get involved? This is especially worrisome, considering the multitude of issues that Oregon has already experienced with both the funding and solvency of PERS.
Is it entirely possible that these issues may be directly related?
The precedence already exists for governments to use both public and private sector retirement plans to offset their sovereign debts. The United States has “borrowed” and spent virtually all of the Social Security reserve funds accumulated from decades of mandatory employee payroll deductions matched by employer contributions. Various European nations, including Poland and Russia, have effectively nationalized private sector retirement plans as well.
It’s no secret that our federal government is deeply in debt, to the tune of $18 trillion. That enormous sum represents only direct sovereign debt. It does not include even greater trillions of dollars in other unfunded liabilities including Medicaid, Medicare and Social Security, as well as debt incurred by myriad public pension funds.
Taxpayers are on the hook to pay for all of that debt incurred through the generations of gratuitous government spending that has taken place throughout various administrations. That debt must eventually be paid and will have to come from somewhere.
We need to make certain that if Treasurer Wheeler is successful in leading our state government into the business of establishing pension plans for private sector employees, it must be done for the right reasons and accompanied by concrete assurances that the funds will not be diverted for other purposes.
Employee contributions must remain voluntary. Employers must never be compelled to match employee contributions. Government-sponsored plans must never be allowed to compete with or replace private sector sponsored plans.
Private sector retirement funds must be constitutionally protected from government repurposing. Specifically, that constitutional protection must include prohibition against borrowing the funds for any purpose. It must forbid redirecting the use of the money to any other purposes, such as providing additional leverage for the sake of bailing out bankrupt public retirement systems.
Accumulated funds must be managed by private sector investors, whose only goals are the secure appreciation of capital to benefit private sector employees. Investments of the private sector retirement funds must not be influenced by the politically motivated social engineering that so often is currently practiced by many public sector investors.
The much better course of action would be for Oregon to simply reject this very bad idea.