I have a close friend who is about to turn forty. I knew her since she was in her teens, college and into her first job. She, shockingly, is still at that company nearing the 20 year mark with them. The company, like so many other private sector organizations has had undulations of all sorts. Many times over the years my friend thought she either needed to look for a new job on her own or the company was going to force her to do it. Ultimately she stuck through it and, as I said, is still chugging along as of this writing. I started thinking about where she was in her career, and where she would be if she had started at a government agency. There are a lot of different vectors to consider including the big three of medical, retirement and paid time off. A quick analysis made me cringe internally. If she was with the government agency, she’d be enjoying twice the time off every year and about ten years from full retirement. She’s obviously stable as a rock, so it was just a fluke that in her 20’s the government jobs she interviewed for didn’t hire her but one of the private sector companies did. She will have to work an extra twenty years because of the luck of the draw. It made me think, how could we structure it so that she could be in the private sector, and yet, still have benefits like a government job. I realized in some cases it’s not just possible, but very easy to pull off. In others, well it’s impossible.
The easiest solution is a retirement account. If you do an analysis on my friend’s 401K, it’s acceptable. Her 401K balance in relation to her income is about a third more than what the average for her generation is. That’s not saying much as the nation’s most popular retirement vehicles are woefully underfunded to the point where experts in that field are rightfully calling it a crisis of epic proportions. According to several investment advisors you need approximately three times your salary in your 401K by age fourty. She’s at approximately twice her salary or less. The solution here would be to mandate portable pension contributions as part of employment law. Portable pensions that originate and are serviced external to the company are easy to transfer. Just like how employees hand over their social security number when they start a new job, they could hand over their pension number. There would be a formula that has a percentage attached to their compensation. To keep things simple I’ll use round numbers to illustrate my point. As an example if the employee earns $100 in a specific period, then there would be a $10 tax for social security, and a $15 minimum contribution to the private pension plan. A pension is really just an investment that will be annuitized with shared risk so that survivors benefit from those who don’t. The math is hard, but far from impossible. Many state and federal pension programs already have the math figured out. You just need a good approximation of how much you have to invest for thirty years to get an income stream comparable to your average salary for your life expectancy. If it’s a third party system then you can go where you want. Going back to my friend, she’d be about ten years away from being able to call her employer and say “I retire” and from calling her pension company and saying “start sending the checks”.
We still have a problem with this scenario. It’s healthcare. Right now the system in America is set up so that healthcare is provided by the employers during the working years and by the government at retirement age. As the national debate about universal health care rages on with increased intensity year after year, it’s pretty easy to see that this system is flawed. One of the flaws is the gap between retirement age, and when you can start to receive Medicare. In effect this forces people to work until they can start receiving government health care almost regardless of how much they have squirreled away for retirement. This is another easy fix as far as I’m concerned. I say easy in that it’s easy with the math involved, but it’s probably politically untenable. You just need to revise the Medicare taxes and qualification to receive services so that it is pegged to years in the workforce versus a static age. If the system is set up so that everybody gets it after they have 30 years worth of credits in, then as soon as you hit your metric, you just call up the Medicare office and say “send me my card.”
This is a fix based upon our current system. Obviously this model isn’t needed if we did go to a single payer system for healthcare which I believe is going to happen sooner or later based upon the trend lines that I see. Still, in most places with socialized health care, there are different tiers, the universal offering and the paid for enhanced tier that many working adults get as an employer benefit even in countries with socialized healthcare systems. This model could be used for the enhanced offering someone would get while they were getting their health care through their working years.
If you look at retirement and health care, they are pretty easy solutions. It’s just money. Money is, at its core, a value system. What do we value the most? If we valued this concept of a robust retirement system, then these solutions are easy. You do the math and start making deposits. It has the added benefit that it puts everybody on a level playing field who hires employees. It’s just a cost of doing business and no matter if your organization is big or little, The impact is similar across the board.
Unfortunately there are some things where there is no easy solution. Paid time off, commonly referred to as PTO includes both easy and difficult solutions. One of which is growth over time, the other is the long term time bank. The time bank aspect of PTO works really well with the aforementioned retirement and healthcare solutions, with the same caveat that it would have a substantial cost. One of the things that the big organizations who offer pensions do is a PTO bank that allows people to retire early. If you are on a PTO accrual tier that is earning six or eight weeks of PTO a year but only use two, the other four or six go into a bank. Of course you can use it if you get really sick and need to take extended leave or you can use it at the end of your time with the organization so that you retire early. This is another easy one insomuch as it’s just allocating PTO cash reserves into an actual account that holds money. As soon as the amount of PTO time equals the time between you and qualifying for retirement, your done. Like healthcare and portable pensions it can simply be a cost of doing business.
The other aspect of PTO, the one where employees use graduated PTO to reward longevity doesn’t work as well. If you’re at the company for 10 years you could get 3 weeks off, if you’re at the company 15 years, you could get 4 weeks off. It’s a way to reward employees for longevity. It’s also cheap for the organizations to offer because so few people stay for long periods of time in our modern economy. For the most part it’s a highly touted but mostly false promise in that such a small percentage of the workforce gets to benefit from it. It also doesn’t work with any type of portability model across the broader economy. If I’m an employer and I have the option to hire someone who has been working for ten years or someone who’s only been working for two for the same salary guess who I’m going to hire? Usually it’s the person with more experience. That changes if I have to pay more in PTO for the person who’s got more time working in the economy. The people who cost less would almost always be hired first. The model only works with government agencies because of agreements in place between Federal, State, and local governments. The model could be abolished as it has been in other countries simply by mandating 6-8 weeks PTO a year for a full time employee.
There are some other benefits afforded by government organizations that are technically possible but would never happen in a practical sense unless there was a tremendously strong union environment in place at the employer. These include old-school benefits like guaranteed raises based upon time in the system and seniority being taken into account when it comes to hirings and layoffs. Even if this was all legislated I could see how employers would play organizational games to be able to hire the least expensive new employees or retain higher performing employees with less seniority. In my opinion it’s simply not viable. It’s also not good for the employers. The old school unions have a bad reputation for saving the jobs of people who maybe shouldn’t have remained employed for various reasons.
Can it all be done? Could we really turn private sector jobs into something that feels like a government job? In another world, a better world, would my friend in the private sector be looking forward to her retirement as much as her same-age buddies who work for the school system? I think in some cases the answer is absolutely yes, at least in theory. In others it’s most likely no. This is a shame, because I believe there are some real benefits to both the economy and the individual when people have earned enough to retire early.
There is one other thing that makes me wish everything I talked about here was reality. Quite often I have friends who will purchase something expensive and/or luxurious. The argument I inevitably get for the acquisition of such luxuries is simply YOLO, meaning you only live once. They figure they might as well enjoy the fun stuff in life as much as possible. If that’s the case, an economic model where you’re able to enjoy your personal time at least as much, if not more than, your working time, seems like a pretty good idea to me. Getting all of the government style benefits in a regular job certainly would get you closer to that. I don’t foresee any of this happening anytime soon. Even if it did it would not have a positive effect for all the people like my close friend who are so far into their careers that they wouldn’t have the working years left to benefit from all the accruals. Still, maybe this is something we can do for the next generation. Maybe they can use some of their spare time to read old blog posts about the collision points between work and life. That’s what I would think would be an awesome way to really enjoy extended PTO and early retirement time!