“Pensions for all’s” respected defender: What he leaves out

A credible media figure (i.e., not George Skelton) has emerged to defend Democratic lawmakers’ “pensions for all” proposal. SB 1234 would require private sector employees to pay 3 percent of their wages into a low-risk pension fund in return for a small guaranteed retirement benefit. In Prop Zero, Joe Mathews took issue with my description of the plan as “baked.” I think the first reaction of most people would be fury over the fact they were being forced to take a 3 percent pay cut to fund a novel, untested state program they had no reason to trust. Joe said my reaction and those of other critics was understandable but “completely backward.” Yo, Joe, say it ain’t so. Yo, Joe, when it comes to SB 1234, I like my side’s odds.

Why does Mathews think it makes sense? Because its emphasis on low-risk pension funds could midwife a more cautious approach to public sector investment returns’ assumptions and usher in a new era of realism at CalPERS.

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.

This seems like an excessively complicated way to address CalPERS’ habit of trying to disguise its vast financial problems and bully its critics. But even if you think Joe Mathews is onto something when he makes this point. he still doesn’t address SB 1234′s manifold shortcomings. It’s not accurate to imply that the bill was dismissed by critics without being fully scrutinized. When I wrote about this on Feb. 23 after reading the bill analysis on leginfo, I identified lots of problems and obstacles:

1) It can easily be depicted as statewide 3 percent pay cut for private sector workers at a time when many are counting every last penny.

2) It can also be depicted as a truly bizarre response to the real pension crisis: requiring everyone who doesn’t have one of the great public employee pensions to invest in the state’s low-rent version of Social Security.

3) Does anyone really believe that this program wouldn’t morph into something that’s partly or largely subsidized by taxpayers or (more likely) private employers?

4) It is built on the assumption that everyone in the private sector is an idiot without the forethought to prepare for retirement. Poverty among the retired is low — even among those who don’t enjoy for decades 75 percent of their highest pay from their government pensions.

5) It presumes a faith in government that I just don’t think Californians have.

If Joe has his public-policy-analyst hat on and thinks there are worthy aspects to SB 1234, that’s one thing. But if Joe is in political analyst mode and actually thinks this will fly with the public, I’ve got a subdivision in Lake Elsinore that I’d like to have him take a look at.

To believe Californians in the private sector have anywhere near the level of faith in state government to accept losing 3 percent of pay on an ongoing basis to fund a state-overseen pension fund … well, that is hard to believe.

A shorter description comes to mind. You guessed it. This view is, yes, baked..

Back to you, Joe. When it comes to you and SB 1234, to paraphrase Moses Malone, I want mo, mo, mo!

P.S.: Yes, emailers, I know that I said last week that this week I would be on vacation. In my defense, I just had no idea I would face such provocations. I will try to avoid the fray tomorrow. But I have a bad feeling that the bullet train’s ludicrous new business plan may bring me back to Calwhine on Tuesday night.






8 thoughts on ““Pensions for all’s” respected defender: What he leaves out

  1. Great commentary on this ridiculous bill – more businesses would leave. And I would bet you can’t help yourself from writing something about the new HSR budget…

  2. Chris – here are some calculations from UnionWatch on this proposal:

    “A ten-year U.S. treasury bond pays around 3.0% per year. Yet CalPERS still claims they can earn 7.75% per year. How much money will this “supplemental pension,” expressed as a percent of final salary, deliver to someone who contributes 3% of their salary for 40 years, invested at 3% per year?

    …taking 3.0% from a paycheck – assuming normal inflation and minimal merit increases (which increases ultimate fund earnings by concentrating more investment in the early career years) – will buy a person who retires after 40 years of full time work at a final annual salary of $50,000 with a whopping $2,010 pension per year; that’s an extra $168 per month.”


  3. This is just another attempt to have a govt-sponsored competitor with a vibrant and full-service private industry. In addition, it is an attempt by the state bureaucrats to go into banking by saying: “we promise 3% and we will invest at market rates”. Crony-socialism at its worst.

    • In a never ending, ever aeinleratccg pandering to BUY votes with the tax-payer’s dollar for the sole purpose of enriching themselves and feeding their own hunger for ego satisfying power a succession of morally bankrupt individuals have lead NJ to the fiscally unsustainable position we find ourselves in today.It is nothing short of astonishing that in the last CENTURY there has not been ONE Governor in NJ who has put the interests of the general population ahead of his/her own.Whether or not they actually get caught breaking the letter of the law they all have been as corrupt as any person who has ever lived. Watching out for the population at large IS NOT DIFFICULT. To have done it so poorly over such a long time speaks very poorly of the quality of not only the elected but those doing the electing as well.A society bereft of moral footings soon succumbs to the equivocating of those promising to scratch their lust and greed. The irresponsible political class pandering to the irresponsible yearnings of those that feel they are entitled to that which they have not earned can only lead to the position we find ourselves in today. When you have a bunch of PIGS feeding a bunch of PIGS the only thing you can expect to end up with is a PIG STY.Welcome to NJ, PIG STY of America.

  4. Small employers will face yet another regulatory trap to fall into — running a pension payroll deduction plan. And the payroll deduction has to have the flexibility to be sent to ANY IRA plan, if the worker prefers their own plan. Yet another reason for businesses to flock to California.

    At least the $1,000 per employee fine owed by the employer for not properly providing this new employee service (for “free”) will go into the investment fund to bolster the retiree returns.

    OOPS! My bad. Such fines disappear into the gaping maw of the state’s GENERAL FUND.

    Well, THAT’s sure money well spent!

  5. The admin cost of this government “voluntary” plan is high — up to 1% of assets annually. I invest my IRA in the Fidelity Spartan S&P 500 Index Fund, and my TOTAL costs are 0.1% a year — as an individual.

    Large funds making such conservative investments should be CHEAPER to run — not up to 10 times more expensive. But that’s our government in action.

  6. Raines’ retirement was eeftcfive December 21, 2004, he is seeking to have it eeftcfive as of June 22, 2005, and thereby receive $600,000 more in pay. Mr. Raines followed a well-worn path in the United States during the later half of the 20th century. His humble beginnings were in Seattle. He won a scholarship to Harvard and was a Rhodes Scholar at Oxford. He worked on Wall Street for over a decade in the prestigious firm Lazard Freres. He was a member of President Clinton’s cabinet and director of his Office of Management and Budget. In 1999, Clinton selected him for the position of Fannie Mae CEO. Following revelations of the financial scandal, Mr. Raines took early retirement from Fannie Mae so that he could collect a compensation package including $1 million per year for life and $11 million in vested stock. In 2003 Mr. Raines was paid $20 million in salary and bonus (payments that are being investigated for government fraud). Fannie Mae is facing criminal investigations by the Justice Department, operational investigations by the SEC, and various Congressional investigations. There are questions regarding earnings statements being incorrectly inflated. In 2003, if derivative and other losses had been included, no bonuses would have been paid to top executives. However, deferral of the losses allowed declared earnings to reach a level which triggered maximum executive bonuses. It is a far stretch to imagine that Franklin Raines actually was capable of satisfying the requirements of the positions he held from Harvard to Director of the White House Office of Management and Budget. If he had been competent enough to hold those positions, how could he have been Fannie Mae’s CEO for 5 years and allowed, not known about, or not understood that $9,000,000,000 was being mishandled.

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