Legislation to authorize the establishment of a new private sector retirement plan, known as SB-1234, seems to be moving along in the State Legislature and could soon reach the Governor’s desk. The bill would create the California Secure Choice Retirement Savings Trust and an Investment Board to administer it.
The reality is that it’s looking increasingly unlikely that private sector workers will in the future be able to retire in comfort. The bill describes a looming pension security crisis in which 50% of California workers will retire at or near the poverty level. It would require private sector employers to provide a payroll deposit retirement savings arrangement to allow employees to contribute a portion of their salary or wages to the California Secure Choice Retirement Savings Plan. Employees can choose to opt out of the plan, and the bill language would permit, but not require, employers to also contribute.
The bill makes a clear statement that the State of California will have no liability for payment of benefits under the program, and that the program is to acquire insurance to protect participants from any loss. A 7 member Board is created, to be chaired by the State Treasurer, to administer this program including the development of investment policy and selecting one or more investment managers. The last version of the bill I have seen seems to allow that Board to select one or more investment managers from the private or public sector.
Much of the angst about public sector pensions these days seems to be founded on the fact that many in the private sector do not have access to a pension option with any kind of guaranty that there will be an income for them when they retire. Increasing numbers have no pension option at all other than Social Security which offers a bare subsistence income at best. Today many of baby boomers who thought they would be able to retire about now are realizing that the 401K pension model they were relying on really does not work well. The California Secure Choice Retirement Savings Plan would be too late for them, but would it provide some hope to today’s younger private sector workers, and maybe even their employers ?