| WASHINGTON, Sept 15
WASHINGTON, Sept 15 A flood of U.S. retirement
is threatening to burst its dam and drown aging Americans with
rising living costs, but one group is proposing a novel way to
protect private-sector workers: invest in public pension
The National Conference on Public Employee Retirement
Systems proposed "the secure choice pension," to allow small-
to medium-sized firms to buy into public retirement funds.
"Currently, there's a retirement deficit of over $8
trillion... that stems from the lack of pensions in the private
sector and small 401k accounts," said NCPERS Executive Director
Hank Kim, the architect of the plan, on Wednesday.
About half of private sector employees have
employer-sponsored retirement plans, mostly 401ks, where they
and their employers contribute money to purchase investments.
In contrast, 85 percent of public sector employees
participate in defined benefit plans, which are traditional
pensions that pay retirees a fixed amount, according to the
National Association of State Retirement Administrators.
The financial crisis destroyed the value of investments in
many 401ks, a name referring to their place in the tax code. As
a result, some workers delayed retirement or returned to work
after retiring to rebuild their nest-eggs.
Meanwhile, Social Security, federal aid for the aged,
expects a surge in demand in coming decades from nearly 78
million retiring "Baby Boomers."
Because of declining death rates, the generation born after
World War Two will draw benefits longer.
"Many Baby Boomers will live their retirement years in
poverty and needing government assistance, or cling onto their
jobs not because they want to...but because they have to," Kim
Moreover, small businesses say administering retirement
accounts is costly, and younger people are struggling to find
jobs with the unemployment rate stuck above 9 percent, let
alone jobs with full benefits.
Under the "the secure choice pension" proposal, states
would open retirement systems to contributions from companies
that lack pension plans. Employees would be fully vested
immediately and amounts contributed to the plans plus earnings
would be guaranteed.
The U.S. government would have to tweak its compensation
laws and states would have to pass legislation allowing the
scheme. The organization, which represents public pension
plans, said it was talking to two to three states.
But the biggest hurdle to the plan may be public opinion.
Over the last year, public pensions have become a subject of
Almost all public pensions can pay benefits for current
retirees, but the system in Central Falls, Rhode Island,
recently contributed to the city's bankruptcy filing. Former
workers may not receive any benefits.
The recession that officially ended in 2009 created a
triple threat for pensions. Governments cut contributions for
public pensions, layoffs meant fewer employees made
contributions and investments providing the bulk of funding
Estimates of future public pension shortfalls range from
$700 billion to $1 trillion, depending on how investment
returns are estimated.
But of late, the returns on investments have come galloping
back, and public retirement systems have grown for six straight
"The vast majority of pension plans are well-funded," said
Kim, adding they have the advantage of professional managers.
A poll conducted by the National Institute on Retirement
Security earlier this year shows the proposal may appeal to
private-sector workers. It found 84 percent of Americans
believe people with pensions will enjoy a secure retirement and
81 percent believe all workers are entitled to pensions.
(Editing by Theodore d'Afflisio)