Downs and Sengenberger: An insecure retirement plan for Colorado millennials
Authors: Albert J. Downs, Jimmy Sengenberger - May 2, 2017 - Updated: April 30, 2017
The “Colorado Secure Savings Plan” (CSSP) — which passed the state House and then died in the Senate “kill committee” last week — would have established a government-run retirement savings fund, paid for by “automatic payroll deductions” and managed by an unelected board of trustees.
Although the bill did not make it past the Senate’s State, Veteran and Military Affairs Committee, it is worth discussing the proposal given its potential resurrection in a future session. HB 1290 was an ill-guided attempt to expand our state’s safety net based on poor assumptions about personal savings. It would have created undue risk to taxpayers and limited worker freedom and choice.
CSSP would have required Coloradans who do not receive employer-sponsored savings benefits to automatically enroll into a state-run investment fund. Unless workers opted-out, mandatory payments would have been taken from each paycheck.
One of the bill’s sponsors was Rep. Brittany Pettersen, D-Lakewood. Herself a millennial at 35, Pettersen suggested in a March 7 interview with radio station KDMT’s Business for Breakfast with Jimmy Sengenberger that younger generations are behind on savings because we “are not being offered retirement plans at the rate that other generations were.”
First, young Americans have unprecedented access to affordable savings. Per the Transamerica Center, millennials start saving far earlier than did older generations, at an average age of 22 compared to 35 for Baby Boomers.
A Bankrate.com study found our generation is most likely of any cohort to save over 5 percent of income — half of millennials do so — compared to roughly a third of Gen Xers and Boomers. Furthermore, only one in five young Americans is saving nothing, far fewer than the one in three older Americans not saving.
Individuals’ ability to find, afford and use investment tools has never been greater. From banking apps for smartphones to services like Acorns or Digit that make investing a part of your daily routine, technology simplifies personal finance.
Almost three quarters of young Americans use digital finance tools, demonstrating that free enterprise has already broadened access to personal investment. Additionally, the American Benefits Council recently reported that about 80 percent of workers are offered retirement benefits by their employer.
Second, Coloradans should be wary of the government’s ability to run an investment fund. The failure that is PERA demonstrates this concern, but even a “profitable” fund faces political incentives to act against public interest.
Unelected bureaucrats managing funds could use them as corporate welfare, propping up the private businesses of political allies or, less nefariously, simply fall prey to the influence of lobbyists that would have undoubtedly be hired by companies wanting a piece of the action. Alternatively, fund managers could buy state and local bonds, leaving future taxpayers with more debt to pay down. Short of holding money under a mattress, there are no good outcomes from any state investment scheme.
Furthermore, claims that CSSP wouldn’t have cost taxpayers are spurious. Should the fund have lost money, there is little reason to believe that special interest pressure to bail out the fund at taxpayer expense would be quelled by a few lines in the fund’s charter.
Moreover, because of the new federal “safe harbor” rule — created under the Obama administration — state-based investment funds that CSSP was modeled after are not subject to the same laws as private financial plans. Allowing government to operate under a different set of rules than the private sector imposes unfair risk on taxpayers and is an affront to equal treatment under the law.
Third, CSSP mandated enrollment. Unless you explicitly opted out, you would have faced less take-home pay and no say over management of your money in a government-controlled account. Even a modest level of required payment to the fund could amount to hundreds of dollars annually being taken from the paychecks of low-income and entry-level workers.
Reports of a crisis in personal savings and investment are greatly exaggerated. Financial planning tools are easily accessible and affordable — and increasingly so by the day. Coloradans should continue to reject more corporate welfare, higher debt and other taxpayer-funded bailouts.
Instead, we should empower individuals to make their own decisions and choose what suits them best among the myriad options markets provide.