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California Private Retirement Plans Encourage Savings

by rjmintz on February 9, 2014

Corporate pension plans, or defined benefit plans, which provide lifetime income to retirees are growing closer to extinction.  In 1979, 38% of workers in the private sector were covered by these plans and now the figure has declined to less than 15%.  Public employees are also facing challenges to their traditional pension model as plans are frozen or cut by cities which have systematically over promised benefits and under funded costs.  The recent Bankruptcy filing by Detroit, along with it’s proposal to sharply reduce current and future pensions, is a certain harbinger of how cities will deal with their pension obligations which cannot be paid.

Most economists recognize that government incentives to encourage retirement savings  represent good social policy. In addition to tax breaks for contributions to IRS qualified plans, California exempts all private retirement plans from bankruptcy or collections in a judgment. This policy effectively encourages employers and self-employed individuals to create additional retirement savings that are not subject to business risks and potential liabilities which may seriously impair their future financial security. Floyd Norris details a variety of incentives to assist in retirement savings.

Floyd Norris article here

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