Dems seek state-run pensions for private workers
9:14 PM, Feb. 23, 2012 |
SACRAMENTO, Calif. (WTW) — Two leading California Democrats introduced
legislation Thursday that attempts to provide retirement savings for
private-sector workers of modest means, creating a government-run program for
private-sector workers whose employers do not offer pensions or 401(k)
plans.
They said it could help an estimated 6.7 million California workers.
Sen. Kevin de Leon and Senate President Pro Tem Darrell Steinberg introduced
SB1234, which would require employers with five or more workers to enroll them
into what they have termed a "personal pension program" to be run by a state
board. Their idea is to get small-business employees and hospitality workers who
don't make much money to save more for their retirement.
"We must take action on the impending retirement tsunami," de Leon, of Los
Angeles, said during a news conference in front of the state Treasurer's Office.
"We cannot afford the rampant poverty and devastation that awaits us if we
continue on our present course."
The lawmakers said they believed their program would be the first in which a
state government established a retirement program for workers in the private
sector. As a program with little or no precedent, several issues remain
unsettled, such as whether California taxpayers would ever be on the hook if
future investment returns failed to meet projections.
In Michigan, the state's Municipal Employees Retirement System began offering
retirement services to Indian gaming tribes in 2009 to manage benefits for
tribal government employees.
According to a draft, SB1234 would establish the Golden State Retirement
Savings Trust, which would be administered by a six-member board, including the
state treasurer, controller, director of finance and an appointment each by the
governor, Senate and Assembly. Private-sector workers would automatically have 3
percent of their earnings set aside in the trust, unless they opted out.
Unlike in an individual IRA or 401(k) account, their benefits — defined as
their contributions plus earnings — would be guaranteed when they retire. The
draft language does not specify how the earnings would be guaranteed. The board
would then contract with a fund administrator, such as the California State
Public Employees Retirement System, the state's main pension fund.
Republican lawmakers warned that taxpayers or employers could wind up on the
hook to cover any shortfalls if the government starts guaranteeing benefits to
private-sector employees. Under proposed legislation, an employer who fails to
enroll in the program or offer their own pension plan would be fined $1,000 per
employee after a 90-day grace period.
"Before we start discussing creating a new pension system, California needs
to focus on the current pension crisis," said Sen. Mimi Walters, R-Lake Forest,
vice chairwoman of the Senate Public Employment and Retirement Committee.
She noted the Democrats' proposal comes four months after Gov. Jerry Brown
put out sweeping reforms to public employee pensions. The largest of those
funds, CalPERS, is underfunded by at least $75 billion.
Unlike most retirement plans for private-sector workers, public employees
receive a guaranteed pension for life that is not subject to the ups and downs
of the stock market. CalPERS, for example, has the ability to impose higher
contributions on state and local governments without the Legislature's
permission.
Additionally, some public employee groups contribute nothing or only modest
amounts to their pensions.
Walters dismissed the legislation as a way for Democrats to deflect attention
from the problems with public pensions. Public employee unions are fighting
against Brown's 12-point reform package and are key campaign supporters of
Democrats.
De Leon, whose previous efforts to open CalPERS up to private-sector
employers have failed, said he believed California taxpayers would not be
burdened by his private pension program. He said the board would be expected to
invest conservatively, offering low earnings tied to long-term treasury
rates.
"This is a minimal risk," de Leon said.
Steinberg, the Senate's leading Democrat, said the majority party is not
running away from reforming public pensions.
"The challenge is not how we settle for an insufficient level of retirement
for all Californians, whether they be public or private employees," he said.
"The question is how do we bring everybody up to a responsible decent standard
of living during their retirement years."
Ilana Boivie, director of programs at the National Institute on Retirement
Security, a not-for-profit organization in Washington, D.C., funded in part by
public pension systems, said half of private-sector workers offer no retirement
program.
One small business owner said it was a good idea.
Andrew Blaskovich, owner of Drewski's Hot Rod Kitchen, a mobile food truck
business in Sacramento, said most of his 25 employees make $2,500 to $3,000 a
month and he can't afford to provide them retirement benefits.
"This gives them an easier opportunity to put away money for the future," he
said during the press conference.
The draft bill said employers would not be forced to contribute to the
retirement plans, but a summary of the legislation from de Leon's office leaves
open the possibility for "companion legislation that requires employers to
assist their employees in saving for retirement."
Copyright 2012 The Associated Press. All rights reserved.