Over the weekend, the Wall Street Journal highlighted California’s move to establish required private sector retirement programs in an editorial that criticized the Obama Administration for taking steps to “socialize” the private retirement business that will end up as a long term entitlement program backed by taxpayers. As often is the case, an idea promoted out of sincere concern opens the door to both politics and the possibility of taxpayers being the insurance of last resort.
The Journal’s criticism focused on the Department of Labor issuing guidelines to allow state mandated private economy retirement programs avoiding any hang-ups with the Employee Retirement Income Security Act (ERISA). Avoiding complications with ERISA laws is a principal concern of the California business community if the Secure Choice plan is ultimately implemented.
The editorial noted that, “nothing in California’s law guarantees ownership or portability. Private financial institutions will putatively insure the plans, but with an implicit taxpayer guarantee.”
The California law is not supposed to be fully implemented unless the program creates no liability for either the state or employers. Clearly, the Journal editorial writers as well as others have little faith that the guarantee would hold up once the measure is in place.
California’s Secure Choice Retirement Savings Trust Act, signed into law by Gov. Jerry Brown in 2012, is still coming together. The plan requires that all businesses with five or more employees that do not already offer a retirement plan enroll employees in a new type of savings plan. One study indicates that could include up to 6.3 million California workers. Employees can opt-out and businesses supposedly are not directly subject to any fiduciary liability.
However, that doesn’t mean that business will escape all burdens under the plan.
One concern expressed by California business associations is that businesses would be responsible in educating employees on retirement alternatives. Potential liability exists if the advice is challenged. Furthermore, businesses are concerned they would be held liable for underfunded programs. Once, again, taxpayers could be the last resort in off-setting such concerns.
Reporter Ed Mendel in his CalPensions website updated the latest discussion about the Secure Choice plan earlier this month.
Beyond the questions for business and taxpayers there is the cloud of politics that sits over the Secure Choice program. Public labor unions, battered by criticisms of over-generous retirement plans that eat deeply into government budgets, embraced the Secure Choice program. For the unions, enlarging a retirement system that is overseen by the public sector could mean more sympathetic allies in the private sector in the battle over reform of current pension policies.
While the issue of a decent retirement is a legitimate concern, political and financial questions could set a trap that would ensnare the state’s businesses and taxpayers.