State seeking to grab private pensions

June 21, 2012

By Katy Grimes

Because California is doing such a bang-up job of managing the state employee pension systems, some lawmakers are pushing to create and manage another retirement program–for the private sector.

According to Sen. Kevin de León, D-Los Angeles, “7 million Californians working in the private sector have no access to retirement programs, and 50 percent run the risk of retiring with no retirement savings, right into poverty.”

SB 1234, by de León and Senate President Pro Tem Darrell Steinberg, D-Sacramento, will supposedly remedy this problem by creating a retirement savings plan “for private workers who do not participate in any other type of employer sponsored retirement savings plan,” according to de León.

But some are saying that this bill is just an attempt to justify the high public employee pensions in California by extending the entitlement to the private sector.

This bill would establish the California Secure Choice Retirement Savings Investment Board, for the purpose of creating a statewide retirement savings plan for private workers.

But any private sector worker can already open up a retirement savings plan, such as a 401(k). And almost everyone pays into the federal Social Security program. So what’s the motive behind SB 1234?

Community organizing benefits

“Recent household surveys indicate that the bottom half of California workers are not being served by the existing system of workplace retirement plans,” said Nari Rhee, a researcher at the University of California, Berkeley’s Center for Labor Research and Education, and author of a new study.

De León, a former community organizer and civil rights activist, said at an Assembly hearing Wednesday that private-sector employers could enroll workers in a new “Personal Pension” defined-benefit program. At a February Senate hearing, de León said the only way the private employers then could get out of creating new personal pension programs would be if they already offer alternative employer-sponsored plans.

Bill analysis states that the new private pension board “would hire private firms to manage the investment portfolio and the retirement savings accounts, and also secure underwriting through private insurers to guarantee the rate of return on the retirement savings plans. CalPERS would also be eligible to bid on the contract to manage the investment portfolio.”

“Every Californian will be able to access this, especially those marginalized,” de León said. It would be “unique in this country,” according to de León, and “an opportunity to buy the American dream.”

De León said that the plan would be voluntary for employees (not employers), have low fees and be portable.

Once, twice, three times a pension

This isn’t de León’s first attempt to provide a new retirement plan administered by CalPERS.  In 2009, de León authored AB 125, which would have created a California Employee Savings Program, And in 2008, he authored AB 2940, which was nearly identical to AB 125, according to bill analysis. Both bills were permanently stalled in the Senate.

De León had a veritable bastion of union supporters at the Assembly Labor and Employment Committee hearing on SB 1234. But the conundrum is that none of the union supporters would be impacted by passage of SB 1234 because they already have union pensions.

So what could be his motive?

Because de León is a well-known activist for Hispanic and Latino causes, many speculate that this is his attempt to provide retirement entitlements to workers in the Latino community.

According to the Berkeley study, “access is worst among low-wage workers (22 percent in the bottom quartile); employees of small firms with less than 100 employees (25 percent); and Latinos (32 percent).”

“A disproportionately large majority (64 percent) of workers without access to a workplace retirement plan are people of color, with Latinos making up the largest single share (46 percent) of the total,” the Berkeley study found.

De León’s proposal would require private-sector employers to offer retirement plans to all workers.

Despite the size of a company, whether it is seasonal or full-time employment, whether or not there is profitability, or whatever the type of business, the accountability issue is the biggest employers will have to mitigate. Requiring private-sector employers to provide retirement plans to all workers is an accountability nightmare waiting to happen, and will most likely benefit lawyers, accountants and third-party administrators.

The medium and small employers, who have to do everything in a business themselves, don’t have the means, the resources or even the government standards of accountability. Government requirements of accountability have become so complex that the average employer cannot currently manage compliance, much less after the State of California forces private sector pension plans onto private sector businesses.

The list of supporters, including such powerful unions as the California Teachers Association and the AFL-CIO, explains everything. (Full list included at the bottom of this article.) But remember that members of these unions already have union pensions.

The list of supporters demonstrates a definitive union and Latino interest. But that shouldn’t be of any surprise, as de León worked for years as an immigrant rights activist and union organizer, according to his alma mater, Pitzer College.

Pension gap

Not surprisingly, the Berkeley study concluded, “A publicly sponsored retirement savings program can close the pension gap and help workers build adequate and secure retirement income,” and offered the following conditions:

* “Automatic enrollment (with employee-level opt out) and automatic payroll deduction, combined with portability across jobs, would help millions of workers save easily and consistently throughout their careers.

* “A large plan in which professionals manage the pooled retirement savings of millions of workers can be more efficient and less costly compared to currently available IRAs and 401(k)s, and offer better insurance against investment risk—important factors for workers with modest incomes.

* “With a large risk pool, the plan can offer attractively priced life annuities compared to the individual market and thus offer secure monthly income throughout a worker’s retirement.”

GOP opposition

De León’s bill was met with opposition from Republican Assembly members. “I am concerned about adding another state mandate on employers, not seen in other states,” said Assemblyman Jeff Gorell, R-Thousand Oaks. “I am concerned about the income taken in and another stock market crash… underwriters can go under.”

“This seems like it will cost employers money,” Assemblyman Mike Morrell, R-Rancho Cucamonga, told de León at the hearing.

“That’s your opinion,” de León said. “I already went through this.”

Morrell asked de León if employee contributions were pre-tax or post-tax. But de León said that he didn’t know, leaving many to question what the benefit would be. Morrell suggested that, without a pre-tax benefit, anyone could open a savings account at a bank and make 1.5 percent interest.

Standard 401 (k) plans allow employees pre-tax contributions, and often, significant savings over the course of a year. But the plans are subject to federal ERISA laws, the Employee Retirement Income Security Act of 1974, which set minimum standards for pension plans in private industry if employee contributions are pre-tax.

The committee chairman, Assemblyman Sandre Swanson, D-Alameda, wrapped the hearing up with a surprising suddenness, preventing Morrell from asking all of his questions. So, I asked Morrell after the hearing what else he wanted to ask de Leon.

“I am an employer,” Morrell said. “What about commission sales people?” Morrell asked. “With regard to ERISA, is this a pre-tax or post-tax contribution? And low fees… to whom?”

“What if an employee has two or three jobs? Who does the bookkeeping, the employer or employee?”

Morrell said that de León said he was going to pull resources together to make the bill work. “What resources? What does he mean?” Morrell asked.

“This is lipstick on a pig,” said Morrell. “For de León to say that the employer will have no liability means nothing–they can change that.”

Lawmakers don’t appear to know crucial details about how this would plan work, but are willing to pass the bill first, so that we can see what’s in it. This is clearly a design-as-you-go bill, with serious implications.

List of supporters:

California Faculty Association, California Labor Federation, Latinos for a Secure Retirement, National Conference on Public Employee Retirement Systems, National Hispanic Council on Aging, SEIU Local 99, AFL-CIO, Greenlining Institute, California Professional Firefighters, California Retired County Employees Association, California School Employees Association, California Teachers Association, AARP-California, AFSCME, AFL-CIO, Association of California School Administrators, California Association of Psychiatric Technicians, Congress of California Seniors, Earned Assets Resource Network, Faculty Association of California Community Colleges, JERICHO, State Association of County Retirement Systems, TELACU.

25 comments

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  1. Rex the Wonder Dog!
    Rex the Wonder Dog! 21 June, 2012, 08:53

    Those low down dirty thieving scumbags!

    Reply this comment
  2. Rex the Wonder Dog!
    Rex the Wonder Dog! 21 June, 2012, 08:53

    RAWGUS scammers 😉

    Reply this comment
  3. Ulysses Uhaul
    Ulysses Uhaul 21 June, 2012, 09:22

    This is a bad plan. It will end up in mandatory withholding of all company employees and independant contractors and administered and charged fees by shakeeees at Calpers. Leading to no say in investment decisions and raids(loans) for the State’s general funds.

    PACK AND SHIP!

    Reply this comment
  4. Donkey
    Donkey 21 June, 2012, 10:10

    These RAGWUS feeders don’t have the ability to earn a living in the private sector. Out of shear hubris they believe they have the capacity to run the investments of a free people!

    The Demonrats in this state are pure commie evil!! 🙂

    Reply this comment
  5. Donkey
    Donkey 21 June, 2012, 10:11

    Yes they are Rex!!!! 🙂

    Reply this comment
  6. Ulysses Uhaul
    Ulysses Uhaul 21 June, 2012, 10:36

    Quite informative…. the creative name calling…appreciate some intellectual and informative possibilities.

    This will morph into a State run social security ponzi scheme…and Calpers shakees will swim in the billions in cash flow while mystically lending it to a BBB rated State general fund…

    Your beloved fatcats on multiple steroids!!!

    Reply this comment
  7. Dyspeptic
    Dyspeptic 21 June, 2012, 11:01

    Does anyone believe that this plan would remain voluntary or opt in for long? Enacting such a dubious scheme won’t change the fact that low wage hispanic workers (clearly the target here since De Leon and Co. don’t give a rats behind about anyone else) need all their current net income to make ends meet. Most simply will not opt in to this plan, making it a failure.

    The next step will be required participation of course. Then when required participation doesn’t achieve the anticipated funding stream to CALPERS, employers will be forced to match employee contributions to increase the investment fund. This scam bill is just the camels nose under the tent. The real purpose of this bill is to blunt criticism of government employee’s ruinously expensive pensions and provide CALPERS with another income stream to mismanage.

    This is a classic example of the condescending and paternalistic Demagoguecrat penchant for assuming that the little people are completely helpless and can’t take care of themselves without social engineering by elitist meddlers like De Leon. The Demogoguecrats are once again dancing on puppet strings for their Marxist union masters.

    Reply this comment
  8. Ulysses Uhaul
    Ulysses Uhaul 21 June, 2012, 11:13

    Lets get lathered up for Wonder and Donkey.

    This mandatory pusedo social security program will require about 7500 bushy tailed new Calpers shakees extrapolated from the national social security admin head count vs national population.

    Oh! We forgot Donkey…there just has to be a death and disability component….hear that giant
    sucking sound!

    And…and…a fraud unit taking two hour lunches…government cars….rental buildings…billion dollar computer system…Retirement packages…

    Oh Wonder….PACK AND SHIP.

    Reply this comment
  9. Rex the Wonder Dog!
    Rex the Wonder Dog! 21 June, 2012, 13:16

    Lets get lathered up for Wonder and Donkey.

    Dude, I have no idea what fantasy you’re playing or thinking, but I am not game for getting “lathered up”….

    Reply this comment
  10. Ulysses Uhaul
    Ulysses Uhaul 21 June, 2012, 14:22

    Wonder…you and your cubicle about to get cleaned out by the ragweeds….it is over….you will have a State social security account tailor made program.

    Reply this comment
  11. Rex the Wonder Dog!
    Rex the Wonder Dog! 21 June, 2012, 15:25

    RAWGUS= must be DESTROYED.

    Reply this comment
  12. SkippingDog
    SkippingDog 21 June, 2012, 19:15

    This is a great idea that’s long overdue. Fortunately, the Republican naysayers in our legislature can be easily outvoted. It would also put a stop to Donkey’s ongoing whine about public employees getting a pension benefit unavailable to anyone else. Donkey could even participate in this new program!

    Every improvement in our social condition must start somewhere, and this is an excellent example of how California can lead the way for our nation.

    Reply this comment
  13. Ulysses Uhaul
    Ulysses Uhaul 21 June, 2012, 19:37

    This program is a bottomless redistribution pit with huge admin costs and potential fraud beyond belief. This will finish us all off!

    Reply this comment
  14. SkippingDog
    SkippingDog 21 June, 2012, 20:05

    The economies of scale available through an organization like CalPERS will reduce the administration costs far below what a mutual fund or investment firm would charge for similar services. The marginal administration cost per dollar of investment are much lower when an organization has hundreds of billions under management than for those firms with less.

    Reply this comment
  15. Ted Steele, The Decider
    Ted Steele, The Decider 21 June, 2012, 20:13

    The article was interesting– the two hate filled name calling dullards are just more of the same on this blog— sad.

    Reply this comment
  16. Donkey
    Donkey 21 June, 2012, 20:27

    Does it hurt Ted? I didn’t think so, the RAGWUS has given you the training needed to continue in your Pavlovian trance. See you at the fall! 🙂

    Reply this comment
  17. Donkey
    Donkey 21 June, 2012, 20:30

    Ulysses Uhaul wrote “This program is a bottomless redistribution pit with huge admin costs and potential fraud beyond belief. This will finish us all off!”

    This is just an end around by the RAGWUS feeders, simply put, smoke and mirriors my private sector friends!! 🙂

    Reply this comment
  18. Ulysses Uhaul
    Ulysses Uhaul 21 June, 2012, 23:01

    Wonder Donkey….your greatest fear is always being on the wrong side of the gravey train…..it’s ok to be middle class and struggling due to bad luck and poor career choices.

    There are no exploitation…you should have coffee with Teddy and Queeg….they will get you in programs you deserve….sorta like Head Start for hurt conservatives.

    Reply this comment
  19. Donkey
    Donkey 22 June, 2012, 05:37

    Ulysses Uhaul, my concerns are the future of my kids and grandkids. The RAGWUS is attempting to enslave them with its obscene pay, benefits, perks, and pensions. The RAGWUS must be destroyed.

    By the way Ulysses Uhaul, I have been very careful with my finances, I retired at a young age after running my own business for over 25 years. I made great choices with my own money and ideas. The choices the RAGWUS makes only deal with theft, conniving,conspire, lie, cheat, steal, and robbing of the taxpayer to fund your unjust pay, benefits, perks, and pensions. 🙂

    Reply this comment
  20. Ulysses Uhaul
    Ulysses Uhaul 22 June, 2012, 07:38

    Donkey. You good fortune will be blessed by sharing with the less fortunate. The little guy pays payroll taxes, part of his rent is for property taxes and filing a short form fed tax is not affording him fat cat deductions. Food is high. Gasoline and utilities crushing. No health or dental or vision insurances.

    Reply this comment
  21. The Henzorator
    The Henzorator 22 June, 2012, 11:29

    I guess its packing time….

    Reply this comment
  22. Rex the Wonder Dog!
    Rex the Wonder Dog! 22 June, 2012, 16:20

    Calpers is a fraud, always will be.

    Reply this comment
  23. Ulysses Uhaul
    Ulysses Uhaul 22 June, 2012, 22:02

    Yepppp! Time to Pack n Ship. This pension/welfare plan would make Woodrow Wilson and FDR proud!

    Reply this comment
  24. NorCal Libertarian
    NorCal Libertarian 24 June, 2012, 12:50

    As long as the numbers in both houses in Sacramento remain even close to being the same, legislation like this will continue to be passed along party lines. Almost every bill that I’ve seen come up is either anti-business or pro-environment seeking to erode our private property rights. I vote for a candidate that campaigns on COMMON SENSE for the benefit OUR benefit. If that candidate does not do what he/she says they will do in the two years they’re in office, my next vote goes elsewhere.

    Reply this comment
  25. John
    John 24 September, 2012, 09:48

    1. Why would any business stay in California if this passes?
    2. Why would anyone start a business in California if this passes ?
    3. Why do any of you still live in this mess of a state?
    As a native born Californian who fled in 1996, take it from me, there are a lot of states that are nice places to live, a helluva lot cheaper and a lot more business friendly. Yes, your weather is great, but you pay one hell of a price for that weather and I don’t just mean monetarily.

    Reply this comment

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