Will Taxpayers Back-up New State Controlled Pension System?

Joel Fox

Editor and Co-Publisher of Fox and Hounds Daily


Gov. Jerry Brown signed SB 1234 to establish a state supervised retirement fund called Secure Choice for private workers. One wonders if at some future time this action will be remembered much like Gov. Gray Davis’s signature on SB 400 of 1999, which put taxpayers on edge by driving public pensions into deep debt.

The bill Davis signed expanded public employee pension benefits putting in place an investment scheme that has not met the demands of pension liabilities. Many of the local taxes on November ballots will see revenue used to satisfy pension obligations, with local pensions increased along the lines of SB 400. SB 1234 by Senate Pro Tem Kevin de Leon has no provision for taxpayer involvement. However, skeptics believe, with good reason, that because of the state’s involvement, taxpayers will be backstop if the system falters.

Brown’s signature ended a four-year quest to establish a private worker retirement fund. There is no argument workers must save more for retirement. The question is should government oversee such a venture. SB 1234 would require employers to take a small percentage out of worker’s checks and deposit into a retirement fund unless the worker opts out. It is estimated than 7 million California workers would be covered by the plan.

The business community objected to the legislation until some late amendments were added to shield employers from liability and administrative burdens while making it clear that the employer is not the sponsor of the retirement plan. The California Chamber of Commerce and some local chambers pulled opposition and, in the end, stood neutral on the measure. Business will still have the obligation of enrolling workers into the system.

Still, taxpayers should be wary considering the history of promises made about the public pension system that expanded under SB 400. Supporters of that bill declared public pensions would be easily funded by investment revenue, even with employees taking retirement at earlier ages. It has not played out that way, with the state looking at billions in public employee pension debt.

As State Senator and financial expert, John Moorlach, commented after the governor signed SB 1234, “You can anticipate that this ‘secure’ investment has the potential to morph into a massive boondoggle.”

While a couple of other states are looking at a similar private worker retirement system, it should be noted that the drive for state controlled private sector pension programs might have a political connection to public pensions.

The term “pension envy” has been used to describe private workers distaste for the public employees superior benefit packages. Private workers have to save for their own retirement while funding the guaranteed public pensions through their taxes. While the creation of a system to establish a private worker fund would help those private workers in retirement, public unions hope to establish a connection between private workers and public pensions, making voters more sympathetic to the public workers if reformers attempt to reel in public pensions.

As I wrote on this site when SB 1234 first surfaced four years ago, “With the glare of the spotlight on public retirement debt, public unions want to change the focus and talk about private employees retirement.”

Thanks to the governor’s signature, Secure Choice is now in place. It will probably take a couple of years to get started. We’ll see a decade from now if echoes of the SB 400 criticism attaches to SB 1234.

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