February 10, 2017

State-mandated IRAs? Terrible idea. Tell Congress no:

Last year, the Department of Labor exempted state and local municipalities from existing rules that protect retirement accounts. 

Free from the rules that govern your 401(k), states see a land grab in the retirement market and want to compete for your nest egg, and in some cases mandate automatic payroll deductions!

We’ve detailed why this just doesn’t work at a policy level, but mandating state-run IRAs is even more concerning at a financial level.

Congress can act to end the exemption – but they need to hear from you.

You should have serious concerns over the soundness of turning over retirement accounts to local municipalities.  Below are just a few of the billion dollar mistakes from our recent report “State Auto-IRAs: The Wrong Answer”. And when financial mismanagement plagues existing government pension plans, it’s usually you the taxpayer that pays for the bailout.

Ironically, the three states that are the most outspoken about state-mandated retirement plans—California, Illinois, and Oregon—have significant funding issues:

  • As of December 31, 2015, the unfunded actuarial liability in the Oregon Public Employees Retirement Fund was $21.8 billion.
  • The California Public Employee Pension Systems (CalPERS) have a $228.2 billion funding shortfall.
  • The projected unfunded liabilities of Illinois’ five state pension systems are projected to be $114.8 billion at the end of FY 2016.

It gets worse. The corruption, bribery, and shady accounting should terrify anyone with retirement savings. Tell Congress you want no part of these shenanigans.

 

New York

As recently as last year, New York State’s pension fund experienced scandal when a former portfolio manager of the pension fund was accused of steering more than $2 billion in business to two brokerage firms in exchange for various bribes. This scandal follows a similar one in the same pension fund that occurred in 2010.

Jacksonville, Florida

The city of Jacksonville realized that incompetence and dishonesty had caused a “$1.6 billion debt” in its police and fire pension fund requiring taxpayers “to pay $153 million into it.” As the expert that the city hired to evaluate the fund noted, as a public pension fund, “it was not subject ERISA’s comprehensive, heightened standards—only patchwork, weaker state and local standards.”

California

In 2016, CalPERS’ management practices once again raised red flags about the integrity and stability of public pension funds in America with the revelation that it kept “two sets of books” with remarkably divergent numbers on the plans it administered, but only made one set showing higher funding levels publicly available. This revelation raised serious alarm over public pension funds’ assertions regarding their funding status and revived a long-running debate among actuaries about whether the actuarial standards used by public pension plans are “fundamentally flawed, causing systemic under-funding and setting up a slow-moving train wreck when baby boomers retired.”

Detroit, Michigan

Detroit’s bankruptcy revealed that the city’s municipal pension funds had "questionable interest rates applied to annuities." Investigators also found that “Detroit's municipal pensions exceeded their legal limits in real-estate investments,” and awarded retirees in some years more than a 20% return on their annuities even as the funds lost value.” A report concluded that the "abuse of discretion was most egregious" when the general retirement fund lost 24% of the value of its assets, but the trustees nevertheless credited annuity savings-plan accounts for current employees with an investment return of 7.5% by utilizing assets that were supposed to be going to fund retiree pensions.

 

We can stop it. Congress can end the exemption by passing H.J. Res 66 and 67. Tell Congress to keep your retirement away from government hands!

The House of Representatives needs to vote FOR:

  • H.J. Res 66, disapproving the rule submitted by the Department of Labor relating to savings arrangements established by States for non-governmental employees
  • H.J. Res 67, Disapproving the rule submitted by the Department of Labor relating to savings arrangements established by qualified State political subdivisions for non-governmental employees.

 

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Topics

Financial