Rules would have spared city $30M in retirement payments
One of the most important -- and long forgotten -- campaigns in the history of California was a 1938 ballot initiative that would have guaranteed every Californian, 50 years of age or older, a $30 check from the state every Thursday. The initiative lost, for reasons too numerous to go into here, but there was a bit of wisdom in the "$30 Every Thursday" plan; everybody would have received the same public pension.
That bit of logic is at the heart of the best thinking that is emerging from the current debate over public employee retirement benefits. Mark Paul and Micah Weinberg (full disclosure: they are colleagues of mine at the New America Foundation) have argued for moving to a cash-balance pension plan for public workers in California -- and also sponsoring a parallel plan for private workers to which employers could contribute voluntarily.
Among the advantages of such plans, they write in the Los Angeles Times:
A cash balance plan has two pieces. As in a 401(k), an employer contributes a percentage of a worker's salary into an account that belongs to the worker. But unlike a 401(k), the employer guarantees a stated annual rate of return -- say 5%, or something close to a risk-free return -- on the money in the account.
A cash balance system has advantages for workers and taxpayers. Because it is portable and always vested, workers can move to a new job and take it with them. Because the return on their accounts is guaranteed, workers do not bear the risks of untimely market swings.
For taxpayers, a cash balance plan reduces the risks of pension underfunding and overpromising. The public is liable only to make a defined contribution each year and to pay the guaranteed return on each worker's cash balance. And because the guaranteed return is modest, the money can be in very safe investments.