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Home Publications Blogs Beat the Press Government Administered Saving Accounts Go Back Before 2006

Government Administered Saving Accounts Go Back Before 2006

Monday, 21 July 2014 05:12

Steven Pearlstein has a good piece on a proposal in Illinois to have the state administer retirement accounts for workers who don't have access to one at their workplace, however he gets one part wrong. Under the proposal, 3.0 percent of a workers paycheck would be automatically deducted for a retirement account, but she would have the option to not have the deduction or to reduce (or increase) the amount. He tells readers:

"This concept goes by the name of “Automatic IRA.” It was first proposed in 2006 by two respected policy wonks, David John, then of the conservative Heritage Foundation (now at AARP), and Mark Iwry, then at the more liberal Brookings Institution (now at the Obama Treasury). It quickly won support from Democrats and Republican sponsors on Capitol Hill. In the 2008 presidential campaign, both John McCain and Barack Obama endorsed it."

Actually the idea goes much further back than this. There were many similar concepts being debated in the 1990s. My friends at the Economic Opportunity Institute in Washington State had been working on this concept in the form of Washington Voluntary Accounts since 1998. So, it's a good piece, but many more folks deserve credit on advancing this proposal.

Btw, he describes Illinois public employee pensions as "overgenerous." I'll let this one pass (workers did forgo pay for these pensions), since my mother gets one.

Comments (9)Add Comment
written by RAM, July 21, 2014 8:13
Since you're constrained from commenting on the "overgenerous" wording concerning Illinois state pensions, I'd just like to say that had the state met their obligations, like all the state workers and teachers did, there would be no pension problems today. Starting with Gov. Jim Thompson, a Republican, state government began breaking their contract with state workers to provide a pension. Not only did they "defer" the state's contributions to the various pension funds, but they stole the money teachers and other workers had contributed through payroll deductions in order to brag they hadn't raised taxes to meet the state's obligations. Everyone knew the bill was going to come due someday, and in a big way, and now it has. The politicians have been trying their best to continue fleecing state workers and teachers, but since the Illinois Constitution guarantees those pensions, they've come up dry. And they keep trying to blame the people from whom they stole the money for the "crisis." Sort of like Willie Sutton blaming the banks for keeping all that money in one place so he could steal it. The solution to the pension mess is simple: Raise taxes to pay the obligations the state has been ignoring for 30 years. Seems pretty clear to me.
Work Till You Drop Dead Retirement Plan
written by leo from Chicago, July 21, 2014 9:29
It gets even worse for those working for the state of Illinois a bit further down the generation ladder. Not only is the pay lousy but if you get suckered into the 401k plan (or whatever they call it), not only is it based on your lousy pay (natch) but they don't pay social security.

It's clearly a 'Work Till You Drop Dead' kind of retirement plan.
Why can't they get Social Security?
written by Dave, July 21, 2014 10:36
Why can't state workers get Social Security? Honestly, I don't understand this.
Rephrased question:
written by Dave, July 21, 2014 10:57
I know public employees don't pay SS taxes and neither does their employer. My question is really this: Why not? Why do they try to provide pensions instead of using the great SS program we have?

I suspect some sort of historical reason that is no longer valid.
written by skeptonomist, July 21, 2014 11:19
Isn't Social Security an "automatic retirement program"? I don't think we need more programs to run money through Wall Street. At least at the moment there is plenty of capital, so more saving by workers is not required to facilitate investment. The current situation is too much capital, not enough demand, which implies that less saving and more spending by workers is needed. Of course workers can't spend the money they don't have, so higher wages are also needed (profits are also too high).

Anyway the way to insure retirement for workers is to expand SS, not have more individual savings accounts. These are good for Wall Street, not workers.
Retirement Savings Accounts?
written by Larry Signor, July 21, 2014 11:42
What is SS if not a pooled retirement savings account? Why not just make it universal (i.e include all government employees) and raise contributions 3%? Talk about re-inventing the wheel...
Re: Rephrased question
written by leo from Chicago, July 21, 2014 2:58
I know public employees don't pay SS taxes and neither does their employer. My question is really this: Why not?

Back in the 30s the states that already had pension plans (like Illinois) got an exemption. Wouldn't you know, the same states nowadays can get rid of the pension and still be exempt.

You can't even pay into Soc. Sec. voluntarily. I asked.

Ideal retirement plan for Guilded Age 2.0
written by Dave, July 21, 2014 4:37
Thanks for the answer.

I think most people believe that private pension plans can provide better performance than SS for some reason. The only reasons this could be true is if 1) Congress intentionally starves SS or 2) wages don't keep pace with capital gains.

Both 1 and 2 are happening for no good reason except that rich people think they deserve a cushy retirement and everyone else should work themselves to death.

Piketty showed us that #2 is true now, but it wasn't back then. #1 wasn't true until Reagan took charge. Reagan did it, all of it!
written by crosspalms, July 22, 2014 4:33
There used to be postal savings accounts, too, as well as systems for regularly buying savings bonds. All voluntary, not exactly retirement plans, but still government administered savings accounts. From Wikipedia:

In the United States, the United States Postal Savings System was established in 1911 under the Act of June 25, 1910 (36 Stat. 814). It was discontinued by the Act of March 28, 1966 (80 Stat. 92).

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.