Retirement Security for Them, Not You

In a nutshell, my take on General Treasurer Gina Raimondo is that she's free to take the politically risky steps of pushing pension reform because she ultimately lacks the power to implement it; that will fall to the General Assembly and the governor. The far left in the state was tickled by her election and is surely looking forward to her ascension to higher office, where she'll have more influence on everything from abortion to welfare to public-sector labor policy.

But first she's got to thread this pension needle — forcing some hard decisions, to win the general-public tag of "courageous," while giving the left-Democrat-labor set no reason to write her out of its book of allies. That's what came to mind when PolitiFact took a look at her aversion to 401(k)s:

During an appearance on the July 10 edition of 10 News Conference, when reporter Jim Taricani asked her about the sustainability of the current system, she pointed out that without a pension program, most people are ill-equipped to deal with the financial challenge of retirement.

The state's pension program, she said, "is clearly crushing the state with a debt we can't afford and that's why we have to fix it. It really is a crisis. Having said that, the average 401(k) in America of a person who's 60 years old is under $100,000, so that isn't retirement security either. I think we can maintain an element of defined benefit, an old-fashioned pension plan, but design it in a way that is sustainable and affordable."

Frankly, I'd have preferred if PolitiFact had utilized the time of its paid journalists to research evidence of whether it's possible to design an affordable system, mainly by investigating the existence and financial health of defined-pension plans outside of the government sphere. Instead, they researched the 401(k) citation and found Raimondo to be, if anything, optimistic.

I'm not persuaded that 401(k) balances are an accurate summation of non-defined-benefit retirements. Of the retirees whose finances I know well enough to comment, none rely on such accounts, or even on IRAs. Rather, they've got regular savings, other sorts of investments, profits from home sales, and such sources of income as life-insurance payouts. None of that is captured in Raimondo's point that there is no secure retirement outside of defined benefits.

Moreover, the average or median 401(k) balance tells us nothing about the average that the an employee would have on a new government defined-contribution program. I'm skeptical that it's possible to design a self-sustainable retirement system that makes promises about the dollar amount that a retiree will receive when both the investment returns and the longevity of the employee are unknowns. On the other hand, it would certainly be possible to design a defined contribution program that generates the coveted security — with the main difference being that it's the responsibility of the retiree to see that the money lasts his or her entire life, not of the taxpayer.

That gets to the broader question: Let's say that Treasurer Raimondo is entirely correct in her insinuation that the average person is ill prepared to retire:

Her spokeswoman, Joy Fox, argued that because the savings rate is under $100,000, Raimondo’s statement would be True, even if the actual number was tens of thousands lower.

Fox also said Raimondo's larger point is that "given how little the average 401(k) was worth, the defined contribution system did not provide retirement security" for state workers who, in the treasurer's words, "at the end of a hardworking career . . . ought to have security in retirement."

Why ought it be a first principle that a population that is ill prepared for its own retirements must guarantee those of government employees? By all means, within the bounds of available resources, include retirement contributions in public-sector benefit packages, but don't demand that they be almost unique in the world of American employment in offering come-Hell-or-high-water security.