As retirement plan coverage declines nationwide and Congress fails to articulate a solution at the federal level, I announced a proposal to offer low-fee, low-risk personal retirement accounts to all workers by providing private-sector employees access to state-level public retirement institutions.

California State FlagThis plan opens state pension funds to new customers from the private sector. Private-sector workers or employers could voluntarily open an account in a state-level public retirement fund such as the California Public Employees' Retirement System or CalPERS. Workers and/or employers would contribute at least five percent of pay into an account guaranteed to earn at least three percent above inflation. At retirement, workers would have the option to convert their savings into an annuity, a guaranteed stream of income for life. The plan is detailed in "Meeting California's Retirement Security Challenge," published October, 2011 by the University of California at Berkeley Center for Labor Research and Education.

Calling the proposal "a meaningful retirement security option for California private sector workers," California State Treasurer Bill Lockyer lauded the plan in a speech at the 21st Annual Northern California Public Retirement Seminar. Lockyer noted that it promises to "make a major dent in the [pension] gap between public and private workers."

The recession's effect on state budgets has diverted the discussion about pension reform to the promises made to public sector retirees. While state officials debate how to reform public pensions, all workers deserve access to safe, effective retirement plans. Private-sector workers have been, and will continue to be, battered by the double jeopardy of increasing market risk in their 401(k)s and decreasing employer coverage. Opening a window for private workers in high performing public pension funds provides a practical blueprint to stave off an impending retirement crisis.

The proposal takes advantage of existing state pension infrastructure to invest private-sector funds. States, through their employee pension plans, sponsor not-for-profit financial institutions that consistently receive the highest returns for the least cost. In fact, public pension plans outperformed 401(k) plans or IRA accounts by 20 to 40% over the last 30 years. These funds are able to use their bargaining power to lower fees, and public pension fund traders have a longer-term view, which stabilizes markets and protects individuals from swings in asset prices.

All states could offer a similar structure overseen by an independent board of trustees and administered like TIAA-CREF—the pension plan for university professors—or the Thrift Savings Plan for federal employees. Pension contributions would be pooled and invested professionally with an emphasis on prudent and low-risk, long-term gains. This would effectively shield workers from the high fees and poor investment choices they face when left to fend for themselves in the retail market. Most importantly, these accounts would be portable, allowing a worker to continue investing in the account as they move from job to job. Though these funds would be kept in a separate investment pool from public sector funds, having private sector workers invested in the same system would shore up public support for state public pension funds.