Through a legislative measure, signed into law by Gov. Jerry Brown on Thursday, most workers in the state who don’t have access to an employer-provided retirement plan will automatically join the Secure Choice Retirement Savings Trust through their work, although employees can opt out.

Senate President Pro Tempore Kevin de León, who championed the bill, argued that while anyone already has the option of enrolling in a private account, many are not. 

“With today’s action, California is providing workers a new chance to achieve better retirement security,” the Los Angeles Democrat said in a statement. “Secure Choice will empower younger generations, working families, and the women who lead them, and help provide the financial security they have earned for the later years of their life.”

Workers will be able to contribute to their account as much of their salaries as they choose, although the default will be 3 percent initially. The accounts will be held in mostly low-risk investments, like treasury bills, with a focus on long-term financial growth. 

The legislation also has provisions to block the state and employers from incurring any liabilities associated with the new program. However, critics are unconvinced that enough safeguards are in place.

“You can anticipate that this ‘secure’ investment has the potential to morph into a massive boondoggle and may become more expensive in meeting investor expectations during the inevitable next economic downturn,” said Sen. John Moorlach, R-Costa Mesa, a certified public accountant and certified financial planner. “SB1234 has no provision from using taxpayer funds to go towards a bail out.” 

The program would be administered by a nine-member California Secure Choice Retirement Savings Investment Board, which is chaired by the state treasurer.

According to a treasurer spokesman, the program will begin being phased in in three years, depending on the number of employees a business has, starting sometime in 2018.

Secure Choice, if implemented, would require employers of five or more people to automatically enroll employees into portable retirement accounts, with an opt-out clause for the individual.

While everyone has the ability to go check-in-hand to invest in a retirement account at any time, proponents of the measure point to the fact that many are not. The theory behind the bill is that the approximately 7 million people in the state who don’t have employer-based retirement accounts need to be nudged into planning for the future.

The program would be administered by a nine-member California Secure Choice Retirement Savings Investment Board, which is chaired by the state treasurer.

On Monday, the board accepted recommendations based on a market analysis and feasibility study prepared by an outside vendor. The study was paid for with $1 million in private funds raised by Senate pro Tem Kevin de León of Los Angeles, the bill’s sponsor.

The study’s recommendations will be added to an amended version of the 2012 bill, which is to be heard in the Senate Public Employment and Retirement Committee by April 22.

Details

The plan is for the state to provide the opportunity for saving. There is no state contribution to the fund, so proponents say there is little to no risk to the state.

The state would incur administrative costs, but those would be covered by participant fees, according to Grant Boykin, deputy treasurer for retirement security and health care.

Businesses will not be required to offer financial advice about the plans, said Boykin. Instead, they will pass on information determined by the board and then set up payroll deductions.

“Education will be hugely important, but that will fall on the board,” Boykin said.

Behavioral economists contacted by de León advised that people are 15 times more likely to save once the account has been opened than if left to open an account on their own, according to Boykin.

De León conceded that there was an element of risk to the employees when investing in retirement funds, but he said that the types of investments would be relatively low-risk.

Opposition

When the initial measure passed in 2012, it was over the opposition of groups like Howard Jarvis Taxpayers Association, which opposed on the grounds that the private sector was already performing this service, and business groups, like the California Chamber of Commerce, which opposed largely on concerns of the impact on employers.

Key findings of the study

• “About 6.8 million workers are potentially eligible for the California Secure Choice Retirement Savings Program.”
• “Likely participation rates (70-90 percent) are sufficiently high to enable the program to achieve broad coverage well above the minimum threshold for financial sustainability.”
• “Eligible participants in California are equally comfortable with a 3 percent or 5 percent contribution rate. The vast majority of likely participants are also comfortable with auto-escalation in 1 percent increments up to 10 percent.”
• “To start, the program should offer a default investment option consisting of a diversified portfolio with long-term growth potential and the choice to opt into a low-risk investment.”

Donations to special interests on behalf of statewide officeholders have grown from $250,000 in 2000 to $4.9 million so far

The donations, which can be solicited by the charity or the officeholder, are unlimited and need only be reported when they top $5,000 in a single year.

And no one has used them more than Gov. Jerry Brown, whose most favored charities, the Oakland Military Institute and the Oakland School for the Arts, have received $19.8 million from various donors who gave on behalf of Brown since 2009, records through the first week of September show.

The institute has prospered over that time frame; tax forms show its total revenue jumped from $7.8 million in the 2010 fiscal year to $9.6 million in 2013, the most recent year available. The academy’s assets – land, equipment and buildings – have also increased from $3.4 million to $9.3 million.

The donations, known as behested payments, sometimes go to a candidate’s own inaugural committee. Attorney General Kamala Harris has raised $195,900 for her inaugural committee, although she is currently running to be the Democratic nominee in a bid for the seat of U.S. Sen. Barbara Boxer, who is retiring next year.

Some of those making donations at Harris’s behest are connected to donors to her Senate campaign, which reported more than $4.1 million in contributions through June.

Microsoft in January donated $5,000 to Harris’s inaugural fund, while 14 Microsoft employees donated a total of $15,050 to her Senate campaign so far this year.

Universal Music Group gave $1,000 to the inaugural fund while Ron Meyer, president of Universal Studios, gave $5,400 to her Senate campaign.

And the Lisa and John Pritzker Family Fund gave $9,700 in May to Harris’ fund. Mary Pritzker, using the address of the family’s Pritzker Group Private Capital in Chicago, donated $2,700 in June to the Harris for Senate campaign.

Legally Avoiding State Campaign Finance Law Limits

Behested payments have allowed donors to give to candidates in a fashion that legally avoids the limits in state campaign finance law. In 2014, state Sen. Ricardo Lara had $199,250 in behested payments donated to the California Latino Legislative Caucus Foundation, a nonprofit 501(c)(3). Lara was CFO of the group in 2013. While Lara’s campaign, and that of the other caucus members, must adhere to state contribution limits – for example, $4,200 from an individual per election – donations to the nonprofit foundations are unrestricted.

Perhaps a larger version of helping your interests is that of Senate President Pro Tem Kevin de León, whose behested payments to the California Secure Choice Retirement Savings Investment Board totaled $549,000 for the last two years.

De Leon in 2012 sponsored Senate Bill 1234, which is aimed at requiring all businesses with five or more employees to offer a retirement plan. The plan’s manager? The California Secure Choice Retirement Savings Investment Board.

Donors included the California Teachers Association, the Service Employees International Union California State Council and the Laura and John Arnold Foundation, a funder of research on public pension reform.

And then there is California Public Utilities Commissioner Michael Picker, under whose name $65,000 was donated for a February dinner honoring his predecessor, Michael Peevey.

Donors included several workman’s unions. The money was supposed to go to the Goldman School of Public Policy at UC Berkeley. But the school refused $30,000 of the money, and Picker distanced himself from the funding.

Peevey is being investigated for emails that show he may have made backroom deals with Pacific Gas & Electric Co.

Picker, an official sponsor of the Feb. 12 dinner, later told an assembly subcommittee that the behested funding was not his doing.

“I wish I could say that I could raise $50,000, I actually, because I intend to be as transparent and as ethical as I can be, and because my name was mentioned on the flyer as a sponsor,” Picker explained. ”I simply made the determination that I could not know who was contributing or why. And rather than guess whether somebody made a contribution, based on the fact that I was going there, I just disclosed it.”

Bill Increases Threshold for Conflicts of Interest

A bill passed last month in Sacramento has all the markings of a measure under which the public loses. Assembly Bill 10 increases the conflict of interest threshold for property holdings from $2,000 to $10,000 and in business holdings from $2,000 to $5,000.

But attached to the bill initially was redemption: a provision that would make behested payments made in the name of a departing officeholder subject to reporting in the same year. That is, if you are removed from office, you can’t just petition friends to give to your favorite charity without reporting it on the way out.

It was a step in the direction of reform, the idea that those leaving the public fold cannot direct money that might help them in their private sector endeavors.

The provision, though, was removed in the late stages of the bill.