SAN ANTONIO, Texas — More than 200 years ago, our country was founded under the concept of self-government. No longer would a “holier than thou” benefactor dictate how the masses should live their lives. The king had been replaced by the individual. Every single citizen was guaranteed the natural right to “life, liberty and the pursuit of happiness.” The government ceased controlling the people. Instead, the people controlled the government.
This concept was new. It was vastly different from other nations of the time. But the codification of this new-found freedom was not guaranteed. In fact, the first attempt failed, and a new constitution would be required. Nothing more shows the concern of the everyday inhabitants than the story of the woman who asked Benjamin Franklin, as he exited Independence Hall, “Sir, what type of government do we have?”
“A republic, if you can keep it,” replied the aged statesmen.
If the Founding Fathers returned today, would they agree whether or not we have “kept it”?
It seems as though the voters, over the years, have been slowly giving it away. Now, I’m no expert in medical services, so I can’t comment on the nationalization of health care that many others have vociferously complained about. I am, however, knowledgeable enough about the retirement services industry to know the ultimate nationalization of that industry will have devastating consequences – not only to the industry itself, but to the average American worker.
Marcia Wagner spoke eloquently on the topic at the CFDD conference here (“A multitude of threats to retirement system“) and she painted a picture that might startle our Founding Fathers.
How and why have we gotten this far? And is the nationalization of retirement as crazy as it sounds?
The bashing of the retirement industry, and 401(k) plans in particular, began in earnest shortly after the market drop of 2008-09. This drip-drip-drip campaign soon merged with the (successful) class warfare strategy of the last election. Empowered by this shift in public discussion, opportunistic politicians saw an avenue to reverse perhaps the greatest legacy of the 1980s – the 401(k) plan.
Much has been said about the amount of people who are currently not covered by retirement plans. The blame has been placed on the shoulders of the 401(k). That this overstates the amount of employees (or the lack thereof) covered prior to the advent of the 401(k) is a truth conveniently ignored. Yes, there may be too few people covered by retirement plans, but the fault lies not with the 401(k). Yet we now see government-based solutions, both those coming from the Senate as well as those offered by the states, that appear to address a problem that doesn’t exist while ignoring a problem that does exist.
The real retirement problem isn’t lack of coverage, it’s over-coverage, or, more appropriately, over-promising.
We’re seeing this in the City of Detroit and select cities in California today. The mainstream press reports the future may feature similar problems in New York City, Los Angeles, as well as the entire state of Illinois. I refer, of course, to the problem of public-sector retirement plans. Local politicians, in hopes of gaining re-election, pledged ever-higher benefits to key public employee constituencies. In exchange for those current-day votes, they mortgaged their municipality’s future. As in the case of Detroit and Stockton, California, the impact has been shattering.
Despite this knowledge, the electoral success of vilifying “the rich” has moved from salaries to retirement plans. The term “Romney-Sized IRA” was not created out of endearment.
Ironically, rather than generating jealousy among the typical retirement saver, it has sparked interest in learning the answer to “How can I Romney-Size my IRA?”
This “can-do” zest – a.k.a. “The American Spirit” – goes unnoticed by Washington and the various state capitals.
As a result, we have proposals from Senate Democrats to outright takeover the private retirement plan industry. Rather than offer a knee-jerk response, Senate Republicans have countered with offers that only slightly tone down the extremes of the opposition.
Even (former?) Tea Party darling Marco Rubio (naively?) proposed a government-based retirement solution. And let’s not forget the states, who seek to override ERISA and create their own hodge-podge set of rules for allowing private parties to join the state retirement system. (Hmm, isn’t that why they created ERISA in the first place and, by the way, how well do you understand all those state-based 529 rules?)
It goes without saying the unintended consequence of these proposals will have a disastrous impact on the ability for Americans to save for retirement. Just look at the results the last time we fiddled with cutting back retirement savings incentives in the 1986 tax reform.
Annual contributions dropped dramatically. This hurt (and will again hurt) everyone, especially the low-wage employees it’s purported to help. Worse, it sacrifices future government revenues in exchange for buying votes – er – reducing the budget deficit today (sound familiar?).
One must seriously question the motives of any politician willing to take such a large risk with the future retirement of millions of workers when there’s a much safer and proven alternative available (401(k) MEPs).
Sure, laugh at me. Say it’ll never happen. But remember this – didn’t you laugh eight years ago at the idea of anyone seriously considering nationalizing the nation’s health care industry? Not only did Washington pass this legislation, but key industry players, having found a way to profit from it, are enabling it. Why can’t the same thing happen to our retirement?
There is, however, reason to hope. Notice the one component of government left out of this discussion – the House. Nothing gets passed without the House. As long as we still have a bastion of die-hard Tea Party representatives influencing the majority’s leadership, it’s doubtful we will be nationalizing anything very soon.
Besides that, there’s an election in a couple of weeks. And we all have an opportunity to make our own individual choice. Let’s hope America hasn’t lost the spirit of self-responsibility.
After all, we don’t want to upset our Founding Fathers, do we?