SCA 1: A Warranty on Government Promises

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

California legislators can prove they believe their own promises if they pass Senate Constitutional Amendment 1 guaranteeing taxpayers would not be liable if the Secure Choice retirement plan for private workers has financial troubles.

During debate over the Secure Choice plan legislators in support of the idea insisted that neither taxpayers nor businesses would be liable if the retirement plan could not meet its financial obligations. Business opposed the plan until amendments were made to the law providing protection from liability.

Now it is time for taxpayers to get similar liability protections by having the legislature put Sen. John Moorlach’s SCA 1 on the ballot for voters’ approval. Moorlach wrote the proposed constitutional amendment to give long-term assurance to taxpayers. “While some language safeguarding taxpayer funds was included in the original bill, there is nothing prohibiting a future legislature from changing the law – and increasing taxpayer liabilities for private sector retirement systems – by a simple majority vote,” Moorlach wrote.

Secure Choice was authored by Senate president pro tem Kevin De Leon to create a retirement program for approximately six million workers who do not have a retirement plan offered by their employers. Secure Choice is a state run retirement savings plan. Private employers with five or more employees are required to enroll employees and make payroll deductions into the state retirement plan. Signed into law by Gov. Jerry Brown last year, the plan will take a couple of years to become operational.

Business opposed the bill until the liability amendments were made but businesses still have responsibilities under the law. There is also the additional issue of Congress reversing an action of the Obama Administration that untangled programs like Secure Choice from the Employee Retirement Income Security Act of 1974 (ERISA) that posed potential business liabilities. Business will have to consider if Congressional action would put businesses in jeopardy.

One of the criticisms of the plan was that Secure Choice conceivably might need to rely on taxpayers for a bailout in difficult economic periods if retirement investments don’t meet their goals. There is precedent for such concern as a I wrote after the bill was signed. I noted that when Gov. Gray Davis signed extended benefits for public employees with SB 400 in 1999, promises were made that additional tax revenue would not be needed to meet the new public employee pension obligations. Now public agencies are being asked to increase payments (in other words, pony up more taxpayer money) to cover retirement costs that are outstripping the investments that were supposed to pay for them.

Taxpayers were promised a similar scenario would not play out under Secure Choice. Okay, legislators, back that promise by approving the constitutional amendment that would prohibit the state from incurring debt under Secure Choice or transferring General Fund money for the program (beyond start-up costs.)

Think of SCA 1 as a product guarantee for government work.

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