March 6, 2012 > Dems seek state-run pensions for private workers
Dems seek state-run pensions for private workers
By Judy Lin, Associated Press
SACRAMENTO, Calif. (AP), Feb 23 - 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.''