We were encouraged to see that, despite his criticisms of the Secure Choice Pension (SCP) proposal put forth recently by the National Conference on Public Employee Retirement Systems (NCPERS), columnist Girard Miller devoted so much space to discussing the plan. We were further encouraged by the many areas of agreement between Miller and NCPERS.
The first and most important area of agreement is that America is on the doorstep of a retirement security crisis. It is crucial that we put responsible ideas for solutions on the table and get the discussion started. We believe SCP is a workable remedy to the crisis of inadequate retirement savings -- and we were glad to see that Miller sees merit to the plan, even if he does express that view in a backhanded way.
Retirement security is not, as many people seem to think, a luxury. For individuals, local communities and the nation as a whole, it is an economic and public policy necessity. At the national level it's about managing the nation's workforce, maintaining and improving our economic competitiveness, and reducing individuals' dependence on government assistance. The private-sector retirement savings deficit is variously estimated between $4.6 trillion and $8.5 trillion. With some 75 million baby boomers retiring in the next 15 years, followed by 80 million millennials, most private-sector workers are at risk. Why? Because they no longer have access to a pension. More than half of private-sector workers have no access to an employer-sponsored retirement plan of any kind. This is especially true for employees of small businesses, traditionally the engine for economic growth.
Retirement security relies on the three-legged stool of personal savings, such as 401(k) plans, Social Security and a pension. SCP pulls from what has worked in the public sector for more than a century and adjusts for the lessons learned about pension design and funding during the Great Recession -- always make annually required payments and never increase benefits retroactively.
The SCP benefit design is "plain vanilla" -- designed to provide a modest minimum benefit based on a conservative rate of return on investment. That benefit can only be received in the form of annuitized lifetime payments, with cost-of-living adjustments granted only during periods when long-term funding is sound.
Miller casts doubt on SCP's sustainability, characterizing it as a "free lunch" and a burden on non-participating taxpayers. We believe he is too hasty in coming to those conclusions.
Data from the last 20 to 100 years demonstrates irrefutably that public pension plans are sustainable in the long term. It's important to note that the SCP is not a public pension plan. It is envisioned as a public-private partnership. Each state would establish its own SCP as a variation of a multiple private employer cash-balance plan. An SCP would have its own board of directors with public- and private-sector representation. The plan would be funded solely by contributions from those private employers and their employees. Those funds may be invested in tandem with public pension funds, to take advantage of the professional management, lower costs and other efficiencies the public plan could offer -- but SCP funds and their earnings would remain separate and would not become part of the participating public pension plans. As envisioned, when SCP's assets grow to a point where it makes economic sense, it could adopt its own professional management and execute its own investment strategy, separate from the sister public pension plan.
Further, we believe Miller makes an artificial distinction between "taxpayers" and SCP participants. There is no question that all working Americans need to save for retirement. NCPERS' goal is secure, full participation in the 50 state SCPs. To the extent that that happens, "taxpayers" and "SCP participants" will be one and the same.
NCPERS would be happy to explain -- and in fact is eager to explain to Miller and to any potential stakeholder -- how the SCP amortization period works, the multiple belt-and-suspenders safeguards built into the funding approach, and all the options available to states to make SCPs workable and sustainable. Indeed, Miller suggests the concept of a pension exchange -- we see significant similarities between SCP and the concept he outlines.
In his column, Miller accuses NCPERS of having "chutzpah" for making this SCP proposal. We would suggest that if there was ever a time for chutzpah, or leadership, or boldness, it's now. Call us what you will -- but it is imperative that the nation begins to have this crucial conversation. NCPERS is focused on achieving retirement security for all American workers. There is no benefit to having nearly a quarter of the population, or the baby boomers, living in communities across the country without adequate income, dependent on safety-net programs, and unable to contribute to their local, state, and national economies.
America's economic, fiscal and financial health depends on finding a solution to the crisis in inadequate retirement savings -- and implementing it quickly. NCPERS is open to any and all ideas that will move this discussion to a workable solution.
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