California's New Retirement Plan for Private Sector Workers Is a Stunning Display of Hypocrisy

If the program is so good, shouldn't government workers be included, too?


Nest Egg
Credit: Matthew Benoit |

In a move of breathtaking hypocrisy, California legislators on March 28 introduced a financially sustainable retirement security program for private workers, while keeping financially unsustainable pensions for public workers.

The move raises a question: If the new retirement security scheme—called Secure Choice—is so great, why aren't public employees going to adopt it too?

The answer is simple: Public employees already earn pensions—paid for by state taxpayers—that are far better than those you'd earn through Secure Choice.

To compare them, look at the official recommendations for Secure Choice. A table on page 53 shows "income replacement" based on years paying into the system at various contribution rates.

At a contribution rate of 10 percent, private-sector workers participating in the new system for 30 years can expect a pension of 27.6 percent. For example, if they earned $50,000 per year in their final year of work, they would get state pensions of $13,800 per year.

Teachers and government administrative workers pay a bit less than 10 percent, and public-safety workers pay a bit more. But after 30 years of employment, teachers and government administrators earn pensions equal to 75 percent of final salary. Public-safety workers earn an astonishing 90 percent of final salary.

There are two reasons for this gigantic disparity. First, public employees rarely pay more than 10 percent of their salary toward their pensions via withholding, but public pension funds like CalPERS collect far more than 10 percent for each employee. The employer—the taxpayer—kicks in up to 40 percent more.

Second, public pensions assume returns on the investment of those contributions will earn a "risk-free" return of 7 percent per year. How much will the Secure Choice plan assume? Refer again to the official recommendations, this time page 16:

Senate Bill 1234 will allow the Board to: Establish managed accounts that would be invested in U.S. Treasuries for the first three years of the program….

The 30-year Treasury Bill is currently paying 2.69 percent.

Let's recap: A "risk-free" annual return according to state pension systems is 7.5 percent. A "risk-free" annual return according to Secure Choice is 2.69 percent.

The attentive reader may wonder what will happen after three years—when the recommendations say "investment options" shall be "developed."

This brings us to the second monstrous hypocrisy: Secure Choice 401k funds will be managed by the same private-sector investment firms that defenders of public pension funds routinely demonize.

If 50 percent of California's 6.8 million eligible private-sector workers participate, using the U.S. Census Bureau's median income estimate for California's private sector workers of $45,000 per year, at a contribution rate of 5 percent, you're talking about $7.6 billion per year under management—not much compared to the $30 billion poured into California's state/local government pension systems each year, or the $45 billion per year that those systems actually require to remain solvent. But it's a huge chunk of change. And you can easily imagine the financial interests now gathering around the capitol.

The irony in all this is that Secure Choice has at least one virtue. It's more sustainable than public-sector pensions. With lower-risk investments, modest benefit formulas, and the built-in capacity to adjust benefits to ensure solvency, this system can be offered to all Californians without blowing up.

Concerned citizens may argue about whether the state should offer any sort of retirement security—Social Security, Secure Choice, or whatever. But if the state is going to create these programs, they should be offered to every worker according to the same set of rules and offer the same set of benefits. Government workers should not be getting deals far better than private workers.

So here's the deal, Sacramento:  Require every state and local government worker immediately to begin participating in Social Security and the Secure Choice program, and encourage them to supplement that with individual 401k retirement accounts. Mandate that all retirement benefits they earn from now on are limited to those three programs. Work out the bugs. Then—and only then—sign up the rest of us.

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  1. I am Jack’s total lack of surprise.

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  2. If the new retirement security scheme?called Secure Choice?is so great, why aren’t public employees going to adopt it too?

    Because leftists are unapologetic hypocrites?

    Because FYTW?

  3. OT, in other news from way on down south:

    Dilma impeachment

    If this disturbing trend continues, Obama’s not going to have a single comrade left south of the border.

    How will Bernie splain this away?

    Wonders of socialism

    1. Norway and Denmark, duh?

      This is an actual response I got on another message board when I mentioned Venezuela. There is no getting through to these people until it hits them in their own wallet, but even then they will bemoan the wrong Top Men rather than the underlying political philosophy.

      1. You literally have to make people stand in line for toilet paper before they change their minds.

        1. Apparently not in Venezuela.

          1. what is thing toilet paper thing you speak off…I thought they just spewed floral scented mist from their delicate behinds

      2. The heavily left wing baseball board I frequent has a rant going on with a bunch of people complaining about paying taxes. I laughed at them and they couldn’t figure out why

        1. But if we taxed the rich at 90%, we would be able to make everything free forever!!


    2. Has she run out of other people’s money already?!

    3. It’s already being spun that the problem in Venezuela is not about socialism and much more complex (jargonspeak for progs who understand it better than anyone) than rubes claim.

      They’re exasperating. No matter how many times socialism in whatever application fails, they will never, ever, never learn and find ways to deflect from it – ie yeh but greedy capitalism and such.

  4. go ahead. fuck up and trust them.

  5. So is this ths California saying they have no confidence in Social Security?

  6. “If the program is so good, shouldn’t government workers be included, too?”

    Leave O-care out of this!

  7. A “risk-free” annual return according to state pension systems is 7.5 percent. A “risk-free” annual return according to Secure Choice is 2.69 percent.

    But what’s the ROI in high-speed rail, green energy production and sustainable agriculture? I’m pretty sure that’s where that money’s getting invested and I’ve heard those things pay for themselves in just a few years, so I’m guessing well over 15%? We’ll be rolling in organic, non-GMO, gluten-free clover, baby!

    1. vegan, small batch, clean & sustainable?

  8. And of course it’s not like we’re not going to get a federal version of this anyway, since Sen. Jeff Merkley and the Center For American Progress are on the job and what red-blooded American is going to argue with progress?

    CAP Action’s analysis, based on a worker earning a typical salary and contributing 12 percent of his or her pay each year starting at age 30 and retiring at age 67, finds that a worker saving in the NSP would be approximately 2.3 times more likely to have a secure retirement?defined as replacing 70 percent of preretirement income with retirement savings and Social Security?than a worker contributing the same amount to a typical 401(k) plan. Because the employer is required to kick in 3% and there’s almost no cost involved in an investment plan that consists of buying government bonds.

    1. there’s almost no cost involved in an investment plan that consists of buying government bonds.

      There is a very high risk if they keep this up.

    2. If employees sign up for this federal thrift saving plan they will be spending just under 20% of their income right off the top.
      Good luck with that.

  9. If the new retirement security scheme?called Secure Choice?is so great, why aren’t public employees going to adopt it too?

    Because the real purpose of Secure Choice is to give the state a pool of money from private workers they can then siphon off to plug the huge deficit in the public pension system.

    1. Now you’re just being cynical.

  10. Interesting. Military members only make 50% of salary after 20 years (and it’s based on the last rank that you held for at least 3 years – so a last second promotion does nothing). Even that is going away/grandfathered out in the next few years.

    1. Yea, but military doesn’t face the same day in and day out struggle for life and death that California Public Unions do.

  11. Two years ago I finally earned enough to hit the maximum Social Security withholding. It took me until I was in my 50’s to get there but, to me, it’s sort of an indicator of financial success and it was one my goals to get there. Now people like Sanders want to eliminate the cap on SS withholding (but not, of course, not increase the cap on SS benefits). This is one of their attempts to make the “rich” to pay “their fair share”.

    In response, I like to suggest that all public pension funds get slushed into Social Security so that the pension-rich can pay their fair share and we can all have an equal pension. Then people say “but I earned that pension” and I say “yes, and I earned my income too”. They still don’t get it.

  12. Because there’s just no way Californians can buy bonds or invest as individuals.

    Makes perfect sense.

    1. Because there’s just no way Californians can buy bonds or invest as individuals.

      Californians are obviously too stupid… just look at who they vote for.

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  18. This is exaggerated. There is a mismatch, but no hypocrisy. State workers get higher benefits for lower wages. Counties, cities and private companies pay more for the same work in many cases – not all. So total compensation works out to be more or less the same. Telling someone close to their retirement or even half-way through their employment that their retirement is not going to be funded at the rate they were told when hired, just wouldn’t fly.
    Maybe it can be applied to new hires, but then state wages will have to keep up with private sector.

    1. Lower pay, are you joking or are you new to the US?

  19. RE: California’s New Retirement Plan for Private Sector Workers Is a Stunning Display of Hypocrisy
    If the program is so good, shouldn’t government workers be included, too?
    Ed Ring | April 16, 2016

    1. Hypocrisy in the People’s Republic of Kalifornia?
    Say it ain’t so!

    2. Government worker’s should always parasite off the taxpayers’ money.
    Isn’t that why the taxpayer’s exist?

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