Quite possibly the worst bill to make its way out of the legislature this year is Senate Bill 1234 (Kevin De Leon, D-Los Angeles). This bill would allow the state government to enter the private pension business under the pretense of “sharing the wealth” of California’s public employee pension systems.
But California has amassed a terrible track record when it comes to maintaining its public pension systems; the systems are currently a combined $240-$500 billion in debt. And because those public employees are obligated to be paid first from the pool of investment dollars, SB 1234 looks like nothing more than a cynical effort to prop up the floundering public employee pension debt with new funds from private investors, sent in by employers who are forced to participate under penalty of law.
While the bill’s author says the private pensions set up by SB 1234 are voluntary, the bill’s language states that private sector employers “must opt out.” Employers must continue opting out every two years.
“Following initial implementation of the program pursuant to this section, at least once every two years, participating employers shall designate an open enrollment period during which eligible employees that previously opted out of the program shall be enrolled in the program unless the employee again elects to opt out as provided in this subdivision.” (See SB 1234, as amended June 27, 2012, p. 20)
Where is the money for the start-up cost in the current state budget?
The program would result in major costs between $1 million and $2 million within CalPERS and the Employment Development Department (EDD) for administrative expenditures and notification requirements to California employers subject to the provisions of the bill.
EDD identifies approximately $465,000 in one-time mailing and form production costs.
CalPERS identifies costs that could range between $800,000 and $2 million for start-up costs and ongoing administrative costs once the program has been developed and has become operational. (Source: Department of Finance, May 2012)
What will to happen to California’s 500,000+ financial services employees, and doesn’t the market already have a variety of savings retirement options?
The effort, liability and expense of SB 1234 are unnecessary given that California already has a robust and highly competitive retirement savings market. California financial services firms – which directly employ 536,000 workers in the state and indirectly employ countless others – currently offer a wide variety of retirement savings alternatives, including 401(k) plans, 403(b) plans, 401(a) plans, 457(b) plans, SIMPLE 3 IRAs, SEP IRAs, and traditional IRAs
The State of California will charge employers a penalty of $250 – $500 per employee for failure to comply with this bill.
“Each eligible employer who, without good cause, fails to allow its eligible employees to participate in the California Secure Choice Retirement Savings Program pursuant to Sections 100014 and 100032 of the Government Code, on or before 90 days after service of notice by the director pursuant to Section 1206 of his or her failure to comply, shall pay a penalty of two hundred fifty dollars ($250) per eligible employee if noncompliance extends 90 days or more after the notice, and if found to be in willful noncompliance 180 days or more after the notice, an additional penalty of five hundred dollars ($500) per eligible employee.” (See SB 1234, as amended June 27, 2012, p. 23)
The fate of billions of dollars in retirement money will be decided by a group of career politicians in a state that is already running a $240 – $500 billion deficit on the state’s pension fund programs.
“The board may allocate excess earnings of the program with respect to assets attributable to the program to the Gain and Loss Reserve Account. In addition, the board may allocate any liability gains and losses to the Gain and Loss Reserve Account.” (SB 1234, as amended June 27, 2012, p.10.)
“California Secure Choice Retirement Savings Investment Board, which shall consist of seven members, with a companion bill SB 923 increasing the membership to nine, with the Treasurer serving as chair, as follows:
- The Treasurer.
- The Director of Finance, or his or her designee.
- The Controller.
- An individual with retirement savings and investment expertise appointed by the Senate Committee on Rules.
- A small business representative appointed by the Governor.
- A public member appointed by the Governor.
- An employee representative appointed by the Speaker of the Assembly.
- Two additional members appointed by the Governor.”
(Source: SB 1234, as amended June 27, 2012, p. 6 and SB 923, as amended August 31, 2012, p. 3)
The irony of it all is that in this government-run pension plan, if employees have financial questions on their retirement plans, they will still have to seek help from private investments advisors.
The disclosure form issued by the California Secure Choice Retirement Savings Plan form “shall clearly articulate the following: (1) Employees seeking financial advice should contact financial advisors, that employers are not in a position to provide financial advice, and that employers are not liable for decisions employees make pursuant to Section 100034.” (SB 1234, as amended June 27, 2012, p. 14)
(Senator Mimi Walters currently serves as Chair of the Senate Committee on Legislative Ethics, Vice Chair of Appropriations, Vice Chair of the Public Employees Retirement System (PERS), and she serves as a member of the Governmental Organization and Banking and Finance committees. Follow Senator Walters on Twitter @mimiwalters. Originally posted on Fox & Hounds.)