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Thursday April 17th 2014

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The Mistake California Makes on Pension Reform

allisonschragerCalifornia is confronting a huge retirement problem: Americans haven’t saved enough and remain uncertain about how to invest their savings. The state is considering a plan to automatically enrolled workers a program where 3% of their savings will go toward an account with a guaranteed 3% return. The purpose of this program seems to be giving people access to a low-risk saving vehicle. But while admirable to encourage more saving,  it is not clear what risk the state of California is trying to mitigate: is it ensuring a certain amount of wealth or more income in retirement? The latter seems more probable because the program is touted to supplement Social Security income. If so, this plan’s design leaves Californians vulnerable to an larger source of risk according to a recent post by economist Allison Schrager.