In December of last year, I wrote about public employee guaranteed benefit pension funds. As discussed in that blog, there are serious sustainability issues with these funds and many states are increasingly requiring employees to work more years before being entitled to their benefits. Nonetheless, economics professor Teresa Ghilarducci has recently opined that “The Solution to the Pension Crisis is More Pensions,” (emphasis added), not working more.
Ms. Ghilarducci argues that creating a guaranteed pension (which she actually envisions as an annuity) for every single individual is easy peasy. Simply use the “over $100 billion a year” currently spent “on tax breaks for pensions that go to people who need it least.” Then, set up Guaranteed Retirement Accounts (GRAs) that will be government/private sector partnerships, with workers, employers and the government all chipping in. And then, viola, somehow the GAR will “eliminate all the risks associated with the “‘financialization’ of pensions.” Perspectives on Work, Vol. 14*, Summer 2010/Winter 2011 at 34-37; see also Ghilarducci, “Guaranteed Retirement Accounts,” Economic Policy Institute, Nov. 20, 2007, http://www.sharedprosperity.org/bp204.html.
It is not clear at all how Ms. Ghilarducci envisions her GARS will eliminate such risks “poor investment choices; that markets will slump for substantial periods of time” or that “inflation will erode assets.” She does seem to put an inordinate amount of faith in a “government –appointed board of trustees” who “will contract with professional investors,” without explaining how that will differentiate her new system from the current one, which likely already relies on boards of trustees and professional investors.
She also extols the existing government pension plans and those of “large corporations,” which may signify that she is conflating defined contribution plans with defined benefit plans. In that case, she is also failing to recognize that each are equally subject to market forces, and that the defined benefit plans are guaranteed by taxpayers, either directly for government sector plans or through the Pension Benefit Guarantee Corporation for private sector plans.
She does admit the federal government, under her GAR, will have to guarantee a particular return of investment. However, she apparently assumes that will not be a problem because the U.S. government is “large enough” to do this reliably and safely. Uh-huh—much like the arguments that such and such an industry is “too big to fail,” or municipalities and countries “can’t go bankrupt.”
All in all, there appear to be more than the usual amount of “economic assumptions” in Ms. Ghilarducci’s theory. However, even assuming her economic assumptions are correct, I cannot imagine her plan for yet another massive federal entitlement program, and federal assumption of a single massive economic sector, will go over well in the current deficit environment.
Her theory reminds me of Free Mean and Free Markets—Proposed: a Guaranteed Income, by Robert Theobold, written in 1965. Although I loved the general idea as a college student in the 90s, I cannot say I’m as enamored now that I am more of a “stakeholder” in present society and have children who will be stuck with any entitlement tab we create here today.
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I know, I know--I said in my last blog reviewing an article from this publication that I was done with this LERA issue, and would move on. But, as it turned out, I couldn't resist resolving all my "old business."
