In another sign of the shift from DB to DC plans, former Los Angeles Mayor Richard Riordan has filed a ballot initiative to overhaul the city’s employee pension system. Riordan’s plan would require future workers to enroll in 401(k)-style retirement accounts instead of government pension plans. The plan — which the City Council supports — would also raise the retirement age for city workers hired after July 1st of next year from 55 to 65, cap retirement benefits at 75 percent of what an employee makes, and require workers to pay more toward their retirement benefits.
Pension plans in the private and public sector are getting harder to fund due to an aging workforce and the new economic reality of slower growth. But while pushing more employees into participant-directed plans makes sense for businesses and government entities, we still have not figured out how to enable participants to properly fund their retirement. Perhaps we should be thinking of a middle ground, like requiring employers to fund a certain percentage of workers’ retirement — that is, a properly designed match that might inspire participants to save more, guided by qualified plan advisors who offer proven methods to improve outcomes.
