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Bruce Bialosky
As a financial professional (CPA), I advise all my clients to put money into a pension plan. All professional literature suggests the earlier you put money into a pension the better off you will be later. Even if you are getting social security it will not be enough to support you in your retirement years, and those years are getting to be longer and longer with increased life spans.
John Chiang, California State Treasurer, has been promoting this plan and he even has a website pushing it which is funded with your tax dollars (of course with a picture of his smiling face). Everything on the website is “peaches and cream.”
The one negative he starts with is how many people don’t have pension plans. Of course, he starts with the Big Lie. They have pension plans. They can set up a traditional IRA. These have been in place since 1974. These retirement savings plans allow you to deduct your pension contribution from your income. In 1989, a variation called the Roth IRA came into existence which allows you to make a similar contribution ($5,500 a year) and not take a deduction now, but then not have anything taxable when you withdraw it later.
Each person who is targeted by Secure Choice already has the option to put money into a plan. The problem is that most don’t have the money to do so because the cost of living in California is so high and their taxes are so high they have no money left to put into a savings fund particularly one they cannot touch for decades without paying penalties. After all, California has the highest poverty rate in the nation.
Chiang’s website points out all the benefits and none of the risks of his perfect world. Secure Choice will be overseen by a nine-member board which will include the State Treasurer, State Controller and then politic cronies of theirs or other elected officials. The plan anticipates billions of dollars going into the fund. That means someone gets to control that money and make fees off that money.
Do you really think that a political board like this will not be tinkering with what they believe the “right” things to invest in will be? They will condemn investing in tobacco or oil, but endorse their favored industries (windmills and solar panels) as opposed to what is best for the savers. They will have debates about investing in Israel as this is publicly controlled money. Otherwise, this will become a hotbed of political correctness as opposed to an independent investment vehicle.
The website tells of how easy this will be for employers. Chiang says they will have no risks and no costs. It does not speak to the fact that they will have to administer the transferring of money to Secure Choice. If they have an outside payroll service, the employer will have new fees. The law does not account for significant mandated hours for the employer to administer this program even though all they supposedly are doing is signing up their employees. If the employees are not correctly informed of the plan, the employer will be blamed and fined with yet-instituted fines for their transgression (those always come later as the legislation states the board has the ability to do such as they always do in the fine print).
The website then refers to employees and how studies show they are 15 times more likely to participate in a direct -deduction program. That is how they came up with the projection that 70-90% of the employees will participate. These appear to be the same people who figured out how many people will participate in Obamacare. How has that worked out?
Chiang is estimating 6.8 million people are in the potential participant pool, that means he think 4.75 million people or more who currently do not have a pension plan will sign up for this program over the first three years. That is a massive number of people which will only lead to an organizational disaster.
To add to the trouble is the reality of what some small business employers will do with their current plans. If you can put your employees on this plan and save $5,000 to $10,000 in pension administration costs in addition to all the hassles surrounding pension plans, then they will dump their own plan and enroll their employees on the state plan.
Under federal laws the employers have fiduciary responsibility to the employees regarding their pension plans. The employer can free itself from that hanging over their head. The downside for the employees is the state will have no like fiduciary responsibility. They are not covered by the same law. You will not see the Consumer Financial Protection Bureau coming after the state administrators for negligence.
Remember they are targeting close to five million people. What will happen is three million or so will be people who had employer plans that were cancelled because they could pass the costs and the risk to the state. So there will only be two million new pension holders (wishful thinking), but the total in Secure Choice will be five million and Chiang will claim it to be the overwhelming success he predicted. Most of the original target population will go unserved. This is exactly how the federal government ginned the numbers for Obamacare, and Chiang will just follow suit.
Thus, the employees will be at a higher risk because the government never takes responsibility. If anything happens they will point fingers at the private industry advisors. The government worms will say it was the people they hired that were evil just like they did in the 2007-2008 housing crisis when they created the crisis with their laws and direction.
And then what happens when there is a downturn in the market and people who never invested before lose their money. Chiang’s website says 66% of the targeted population are people of color. The race-baiters will flood the legislature. The Hispanic and Black legislators will scream about how their poor constituents have been cheated and abused — that they should be protected like the government employees and teachers.
And then you and I will be stuck with the bill.