It's crazy enough that it just might work.
Despite existing pension shortfalls, group suggests new funds for private-sector workers
By Zachary Janowski
Even though government-employee pension plans nationwide are billions if not trillions of dollars underfunded, the union officials and government employees who run those funds want to create public pensions for private-sector workers.
Amid a political environment where pensions for government employees are losing favor, the National Conference on Public Employee Retirement Systems created Secure Choice Pension as a model state-run plan for residents who don't work for state or local governments.
Estimates of unfunded state pension liabilities range from $730 billion to $4.4 trillion, according to an April 2012 report by the Mossavar-Rahmani Center for Business and Government at Harvard's Kennedy School.
These dire projections have led to the implementation of high-profile pension reforms from Rhode Island to Wisconsin.
New York City Comptroller John Liu, speaking at the NCPERS conference earlier this month, criticized the politicians reining in benefits for capitalizing on "pension envy."
Instead NCPERS wants to expand pensions to increase political support for them.
"The traditional pension, which guarantees a small and steady income no matter how long a person lives, is a cost-effective and extremely efficient way of providing retirement security," Liu said. "We need to extend that same protection to everyone."
"The public sector's traditional pension is crucially important. It serves as a bulwark against the growing retirement crisis we face in this country," he said.
"What it defines as a benefit is a rate of return on the contributions into the plan," said Cathie Eitelberg, a senior vice president for actuarial firm Segal.
She said the model program developed by NCPERS with her company's advice would guarantee a 3 percent annual return to participants.
Employees and employers would each contribute 3 percent of pay.
"We think that over time it would be a higher percentage return," she said.
Eitelberg said returns above the guaranteed 3 percent rate would be placed into a reserve fund that could be used to make up future gaps in funding, make one-time cost-of-living payments to retirees or increase the rate of return on contributions.
She said the enabling state has the option of customizing the "very vanilla" design of the Secure Choice model.
"You have an infrastructure that's already in place," she said of existing government pension plans. "They run relatively lean as far as operating costs."
"We don't expect to comingle. We would co-invest," she said.
Eitelberg said public plans could even loan start-up funds to the new funds. Alternatively, she said, the state or a foundation could provide a grant to get the program started.
She said private companies could offer a Secure Choice plan, but they haven't yet.
"Maybe the public sector is going to lead the way," she said. "I think that people haven't thought this way."
Read the whole story at Raising Hale.