By Chuck DeVore
California Gov. Jerry Brown signed SB 1234, a law that establishes the California Secure Choice Retirement Savings Trust, a state-run retirement fund for 7.5 million Californians.
All firms with more than four employees will be forced to participate unless they already offer a retirement plan. Unless they opt out, private sector employees will see 3 percent of their salaries automatically deducted from their paychecks to be held in trust by a panel of politicians and political appointees.
Per section 100004(c) of the new law:
Moneys in the program fund may be invested or reinvested by the treasurer or may be invested in whole or in part under contract with the Board of Administration of the Public Employees’ Retirement System (CalPERS) or private money managers, or both, as determined by the board.
CalPERS is America’s largest public pension fund with some 1.8 million current and retired government employees. The state has unfunded liability for future retirement payouts is about $991 million, (including the California teacher retirement system and smaller local government systems) according to the Stanford Institute for Economic Policy Research’s Pension Tracker.
Since cash is amazingly fungible in government hands, dragooning some 7.5 million Californians into a retirement system that supports 1.8 million state government workers by levying what amounts to a 3 percent payroll tax is going to go a long way towards ensuring CalPERS’ short-term solvency.
Never letting a crisis go to waste, the Obama administration announced a Department of Labor rule to “encourage” states and local governments to offer government-run retirement plans for non- government workers.
Labor unions love the forced government-run retirement plans as it puts far more financial clout into the hands of their hand picked political allies on the investment boards — leverage that has already been used to pressure firms with public investments to bow to various progres- sive demands.
Critics point out that the new program will only amplify the already huge liabilities in California’s largest public retirement system, particularly if their investments take a hit in the market.
Chuck DeVore served in the California State Assembly from 2004 to 2010.