Soapbox

Unions are hypocrites on 401(k)s

Members of the California Nurses Association march in May in Sacramento. The union is one of several that provide 401(k) retirement plans to their employees.
Members of the California Nurses Association march in May in Sacramento. The union is one of several that provide 401(k) retirement plans to their employees. Sacramento Bee file

California pension reformers are seeking to qualify a 2016 ballot measure to give state and local governments the option of placing new employees in 401(k)-style retirement plans.

Unions for government employees and teachers, who want to keep existing pensions, have deployed “truth squads” to fight this proposed reform. They vow to spend whatever it takes to defeat the measure.

But the union bosses, themselves, are not telling the truth.

The reality is that many of California’s most militant and powerful government unions provide their own employees with the same kind of 401(k) plans they are now attacking.

We reviewed these unions’ most recent annual employee benefit forms filed with the U.S. Department of Labor. For employees of many of these unions, 401(k) plans are their only option.

Unions that provide 401(k)s include the California Association of Highway Patrolmen, California Correctional Peace Officers Association, California Nurses Association, California Professional Firefighters, California Teachers Association and California State Employees Association SEIU Local 1000.

For decades, private-sector companies have been switching from “defined benefit” pensions that guarantee retirees a specific monthly payment for life to defined-contribution 401(k) plans. Unions are smart to offer their employees such plans to help control costs.

Now state and local governments should catch up.

With 401(k)s, government employees invest their own retirement money. As with comparable private-sector plans, employees are guaranteed payments from their employers, but not specific benefits during retirement.

Taxpayers can never be on the hook for funding gaps, because 401(k) plans are always fully funded.

With 401(k)s, retirement costs for government agencies are easier to project and control, making budgeting simpler and more transparent. Benefits can be adjusted based on economic and market realities.

The savings from switching to 401(k)s would allow public pension debts to be paid off more quickly – a vital step toward sparing future generations greater pension pain.

Also, 401(k)s are a better recruitment tool for today’s mobile workforce, where employees typically stay fewer years with an employer and have more jobs during their careers.

A recent statewide poll found that 68 percent of likely voters in California believe public pension costs are a problem for state and local government budgets, and that 70 percent favor a 401(k)-style plan for new California government employees.

When union officials bad-mouth 401(k)s, Californians should ask two key questions: If 401(k)s are so bad, why are they good for your own employees? And if 401(k)s are good for employees of the union, why wage war on the proposed ballot measure?

Lawrence J. McQuillan is a senior fellow at the Independent Institute, a research center in Oakland, and can be contacted at lmcquillan@independent.org. Hayeon Carol Park is a policy researcher at the institute and can be reached at phayeon@gmail.com.

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