California copied as states seek retirement plans
December 8, 2014 - Calpensions
A California plan to give private-sector workers a state-run retirement
savings plan is nearing $1 million in contributions, the goal set to pay for a
market analysis to help design the program.
Although the California plan is still in the formative stage, last week the
Illinois legislature approved a plan based on the California model, even using
the same name, gSecure Choice.h
Legislation for similar programs named gSecure Choiceh has been introduced in
three other states: Maryland, Minnesota and Ohio. A variety of plans to aid
workers without retirement plans has been introduced
in 17 state legislatures.
Half of private-sector workers have no employer retirement plan beyond
Social Security and may face a bleak financial future. Baby Boom retirements,
dwindling private pensions and 401(k) investment losses during the recession are
heating up the issue.
President Obama issued an executive order last January creating
gMyRA,h a paycheck-deduction bond program. The U.S. Treasury
department, reportedly preparing to begin the plan with a number of large
employers, declined to comment last week.
Sen. Marco Rubio of Florida, a potential Republican candidate for president,
advocated
in May that the federal Thrift Savings Plan be opened to all Americans. The plan
for civil servants and the military has several stock and bond investment
options.
In California, Senate President Pro Tempore Kevin de Leon, D-Los Angeles,
sworn in as the new Senate leader in October, tried for four years before
obtaining legislation two years ago for the Secure
Choice Retirement Savings Program.
Employees of firms with five or more workers that provide no retirement plan
would be given the option of an automatic deduction from their paycheck,
probably around 3 percent, that goes into a tax-deferred savings plan.
Saving is believed to be more likely with a deduction that removes the
decision from daily spending pressure. Whether the plan guarantees a minimum
return or seeks riskier higher returns is yet to be determined, but insurance
would prevent losses.
The gautomatic IRAh (SB 1234 in 2012) got little Republican support and was
opposed by insurance, financial planner, employer and taxpayer groups. Among
their concerns: competition, paperwork, state liability and doubt about the need
for the plan.
The legislation created a nine-member board to oversee administration of the
plan through the state treasurerfs office and also imposed tight controls. A
board plan for the program developed after the market analysis must go to the
Legislature for approval.
Employers and the state can have no liability for the plan. Approval must be
obtained for an IRS tax deferral and an exemption from federal (ERISA) labor
benefit rules. And the retirement savings plan must be self-funded.
Now a drive to raise $1 million for the market analysis is nearly complete.
A $500,000 matching grant is coming from the Laura and John Arnold Foundation,
financed by a Texas hedge fund billionaire vilified by labor for backing pension
reform.
SEIU state labor council, California Teachers Association and Ford
Foundation are each contributing $100,000; AARP $60,000; California Endowment
and state Sen. Ted Lieu each $50,000; Steve Westly $1,000 and gnot yet
identifiedh $39,000.
The program staff is expected to recommend the hiring of a law firm, K&L
Gates, at a board meeting Dec. 18. Proposals to do the marketing analysis are
due early next month, and the two finalists may be interviewed by the board Jan.
26.
The marketing analysis is expected to be based on a combination of existing
data and a sampling of eligible employers and employees. When delivered to the
board, the study will include feasibility and program design.
gThat will start the process of the board doing the heavy lifting of coming
up with what recommendations they are going to make to the Legislature,h said
Grant Boyken, Secure Choice acting executive director.
Financial Security for Future Retirees in the States, 2012
Overall financial security scores based on potential economic pressures facing future retirees
California ranks at the bottom among the 50 states in a gFinancial Security
Scorecardh for future retirees issued last March by the National Institute on
Retirement Security.
The scorecard
uses eight measures of three key financial security factors:
anticipated income, major costs such as housing and health care, and labor
market conditions for older workers.
On a scale of 1 to 10, California had an overall score of 3, tied at the
bottom with South Carolina and Florida in 2012. In the data for 2000, California
also had a score of 3 and was tied at the bottom with Mississippi, which moved
up to score 5 in 2012.
In the eight measurements used for the score, California ranked 44 among the
states for the share of private-sector workers in an employer retirement plan,
40.21 percent. Ranked 50 was Florida, 33.97 percent. Iowa ranked first, 54.08
percent.
In average defined contribution [401(k)-style individual investments]
retirement account balances, California ranked 45 among the states, $23,381.
Ranked 50 was South Carolina, $20,630. Wisconsin ranked first, $45,641.
For De Leon, the statistics have a personal meaning. He told National Public
Radio last year that the inspiration for his automatic IRA bill is his aunt,
Francisca, who is 74.
gShefs my second mother. Shefs the woman who made me dinner and breakfast,
and shefs still a housekeeper in one of the wealthiest enclaves in America,h
said
de Leon, who grew up in San Diego.
gI send her a check on a monthly basis, and she receives her Social Security
check. But itfs simply not enough for her to pay the rent, to put the food on
the table, to pay for her medication.h
The first version of de Leonfs automatic IRA bill in 2008 would have
directed the California Public Employees Retirement System to offer the savings
plan to private-sector workers who have no employer retirement plan.
In debates over pension reform, particularly switching to 401(k)-style
plans, unions and other public pension supporters sometimes argue that the
solution is retirement security for everyone, not taking it away from those who
have it.
One of the 11 points in gPension
Beliefsh adopted by the CalPERS board last May: gInadequate financial
preparation for retirement is a growing national concern; therefore, all
employees should have effective means to pursue retirement security.h
Another belief: gAs a leader, CalPERS should advocate for retirement
security for Americafs workers and for the value of defined benefit (pension)
plans.h
CalPERS had no position on the final version of de Leonfs bill. But if the
Secure Choice plan is found to be workable and approved by the Legislature,
would CalPERS become an advocate and administrator for the program?
gAs you point out, retirement security is important to us and one of our
fundamental beliefs,h Brad Pacheco, CalPERS spokesman, said via e-mail. gWe have
and look forward to continuing to provide technical assistance and expertise as
the plan advances. That being said, itfs too early in the process to be more
definitive until more details about the plan and feasibility are available.h
Reporter Ed Mendel covered the Capitol in Sacramento for nearly three
decades, most recently for the San Diego Union-Tribune. More stories are at
Calpensions.com. Posted 8 Dec 14