So maybe states shouldn’t start running IRAs for private-sector workers. But that leaves the question: If the states decide they want to take on this responsibility, why should the federal government regulate them?
One answer is provided by Tom Christina, a specialist in employee benefits at Ogletree Deakins, a law firm that represents employers:
If these plans turn out not to have acceptable rates of return, then I think you will see the constituents of those plans in the various states clamoring for some kind of relief and one of the things that all of these plan designs have in common is that the states disclaim any responsibility for the rate of return. So the clamoring will be in the general direction of Washington.
State-government mismanagement, especially of pensions, has already created a danger that federal bailouts of states will someday be required. It’s a thorny problem without a good solution. Under the circumstances, letting states manage more retirement money at their discretion seems imprudent.
Congress should clarify that states can offer these IRAs, but that their plans will come under ERISA rules. Devolution is often a good idea, but this time Congress should say no.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
This article was provided by Bloomberg News.