Most public-sector retirement programs have solvency issues that threaten the long-term health of many state and local governments. Naturally, then, politicians in Nevada and elsewhere now look to expand government involvement in private-sector retirement accounts.
Last week, the state Senate took up Senate Bill 305, which would establish a state-run retirement plan for Nevada’s private-sector workers. A handful of states over the past few years have created similar programs. The goal is to provide an investment vehicle for employees who do not have access to such an account through work.
The proposal, sponsored by state Sen. Dallas Harris, D-Las Vegas, is well-intentioned. About half of all Americans believe they don’t make enough money to adequately save for their later years, a recent Anytime Estimate survey found. One in 10 doubts they’ll ever be able to retire. Sen Harris said her bill is an effort to jump-start retirement savings in an effort to avoid higher social costs down the road.
But dangers abound with this approach.
Those who do not have a 401(k) or other retirement option at work are still free to open IRAs or other vehicles at numerous financial institutions. The explosion in online banking has made the process even more accessible. What will be the long-term ramifications for the industry if more and more states roll out private-sector plans in competition with existing financial entities? Will employers be even less likely to create and maintain their own plans for employees if a government option is available?
Of greater concern, however, is that politics will inevitably dominate the exercise. Will workers have a wide range of investment options, similar to what is offered through a traditional 401(k)? Will fiduciary standards apply to ensure the highest potential returns? Or will elected officials promote pet causes and favored programs through such investments?
“When one party’s in control, investments would go one way,” Brian Graff, CEO of the American Retirement Association, told Bloomberg Law. “When another party’s in control, they’ll go another way. That’s not good for a long-term investment strategy.”
Sen. Harris insists her proposal “costs nothing to the state” or to taxpayers. But it’s not hard to envision a scenario in which lawmakers involuntarily conscript taxpayers to make up fund losses or pad benefits. The temptation for elected officials to intervene for any number of reasons will be immense.
Encouraging private-sector companies to offer retirement programs for workers makes sense. But governments have a long track record of fiscal mismanagement, as the current dismal state of government pension systems makes clear. Perhaps it would be wise to put out that fire before starting another one.