Saturday, December 12, 2015

New Retirement Savings Scheme in New Jersey Expands Government Control of Retirees’ Savings

A New Jersey legislator wants the state to establish retirement savings accounts for any worker that doesn’t have one. As Matt Friedman of NJ Advance Media reports for

New Jersey would be one of the first states in the nation to offer retirement accounts to private sector workers who don't have them under a plan backed by the leader of the state Assembly.

Assembly Speaker Vincent Prieto (D-Hudson) on Monday proposed the legislation (A4275), which is based on a plan in Illinois that was signed into law in January and is touted as the first of its kind in the country.

The Illinois law “requires all businesses in operation for at least two years and that have at least 25 employees to offer by June 1, 2017, its workers an individual retirement savings option.” In the NJ version, companies would have the option of setting up their own employee retirement plan if they don’t already have one, or sign on to the so-called "New Jersey Secure Choice Savings Program.”  Individual workers could opt out.

Of course, what the government “gives” you, the government will control:

The program, which would take effect within two years of its passage, would be administered by a seven-member board made up of officials from the governor's office and appointees by the senate president and assembly speaker.

The retirement benefits would be held in the a fund be used for paying the benefits, administration of the program and investments on behalf of the program. [sic]

Need I say more? Aren’t these the same people who currently administer the state public employee pension system, massive unfunded liability and all? Government bureaucrats beholden to politicians would decide how your money is invested and how your benefits are paid out.

Observe also that this is another example of the “need” for a government program being created by a prior government program. Friedman reports:

"This truly is a win-win for employees and employers," [Democrat Assembly Speaker Vincent] Prieto said in a statement. "The vast majority of today's retirees rely primarily on Social Security payments for income. Meanwhile, retirement savings are a mounting anxiety for more and more workers.

"This program will create much-needed security and peace of mind for employees who have no retirement plan right now," [Republican co-sponsor Assemblyman Tim] Eustace said.

In other words, the “security” promised by Social Security doesn’t deliver much security. But the promise of that security created a disincentive for workers to save privately. The result: many realize too late—and after a lifetime of FICA taxes—that relying only on Social Security leaves one scraping by on the edge of poverty.

To be sure, workers who become primarily dependent on Social Security are not completely blameless. The idea that Social Security shouldn’t be a person’s only retirement vehicle is not exactly a state secret. Retirement experts have been telling us for decades to save save save to supplement Social Security. But still, the disincentive to save cannot be denied. So, once again—like the fireman who starts fires so he can be the “hero” who rushes to extinguish it—the government can be seen rushing to the rescue of its own victims.

Any worker who uses this politically-controlled plan is a fool. Better idea: Opt out and set up your own IRA with one of the many private mutual fund companies. Anyone is free to set up his own IRA. It’s easy, and you can fund your plan by direct periodic transfers from your checking account to your IRA. By all means, take advantage of your company’s 401k or equivalent program, if available. You needn’t involve N.J. politicians in your private financial affairs.

Along the lines of Individual Retirement Accounts, a good idea to lobby politicians for would be Universal Savings Accounts, which enable savers to put after-tax money away for any reason, and withdraw the savings and accumulated returns tax free. As Reason’s Veronique de Rugy observes, the accounts would be “pro-growth, pro-family [?], and pro-freedom, with a much-needed side of simplification and flexibility.” Furthermore, she writes, Universal Savings Accounts, lacking any special conditions (such as retirement, college, etc.), can operate “without giving special treatment to favored interest groups through the tax code.” (A flat tax with much lower income tax rates, which I favor, would eliminate all such deductions. But as long as the status quo exists, I favor almost any tax relief offered to individuals.)

True, traditional IRAs, 401Ks, so-called USA’s and the like use the tax code to “encourage savings”; i.e., manipulate people’s behavior. But at least the saver won’t have some government panel beholden to politicians looking over their shoulder—or worse, taking unearned credit for whatever benefits accrue to individuals taking advantage of the program, making people feel like they owe it all to government.

Longer term—and worst of all—these types of programs are a threat to liberty. Traditional retirement programs give relief from taxes, but otherwise leave the administration of the funds in private hands. The New Jersey Secure Choice Savings Program does nothing more than to secure government control of workers’ retirement planning. The state, with its law-making powers, is effectively overriding private firms that have no such power. It is “the camel’s nose under the tent” of a complete government takeover of retirement, a logical progression started by Social Security.

A political power grab is the only logical motive behind this bill. What other motive could their be? As the South Jersey Chamber of Commerce observes, there is no “need” for a government-run Individual Retirement Account:

There is no shortage of retirement vehicles available to workers today through private companies. These companies provide the expertise needed to advise employers and employees on the options that are available to them and their tax implications.

The New Jersey Secure Choice Savings Program is a bad deal for workers and a bad deal for our liberty. Shame on the legislators who proposed it. It should be defeated.

Related Reading:

The "Personal Account" Path to Ending Social Security

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