Bad Idea – California Creates State-Run Private Retirement Plan

Two weeks ago the California Legislature passed a new law establishing the “California Secure Choice Retirement Savings Program (CSCRSP).” Under the guise of promoting retirement security for Californians, CSCRSP requires employers to collect a 3% wage tax from their employees every pay period. These funds are to be turned over to the State to be “invested” on behalf of its citizens. Unfortunately for California taxpayers, this new law is in effect a massive tax increase that could be used to prop up the California Public Employees’ Retirement System (CalPERS) – which is in dire need of real reform.

In just a few short months, nearly every employer in California will be begin withholding 3% of all employee pay for the CSCRSP. An estimated $6.6 Billion in the first year alone will be “invested” with a professional fund manager selected by a seven-member board chaired by the State Treasurer. The State Treasurer serves as an ex-officio member of CalPERS, and it is widely anticipated that CalPERS will be selected as the professional fund manager for this new program.

Once CalPERS is entrusted with the substantial new revenue streams from the CSCRSP program, it will be allowed by statute to invest those funds “in conjunction with other funds”. The stated investment policy of CSCRSP is to “preserve the safety of principal and provide a stable and low-risk rate of return”. This rate of return will be set by the CSCRSP board, and will likely be very low. The end result of the pooling of investments and low expected returns will allow CalPERS to siphon off excess investment returns from citizens of California to shore up overly generous pensions for public employees. CalPERS is currently facing $135 Billion of unfunded pension liabilities, but is still guaranteeing California public employees investment returns of over 7%. Instead of trimming benefits for current public employees or asking them to pay the full freight of their pensions, the California legislature has turned to the taxpayers once again.

Diverting another $6.6 Billion from the private sector to the public sector of the economy will not solve California’s financial problems. Instead, it will exacerbate them. Conveniently, while the State confiscates 3% of wages for this retirement program, the legislation at the same time absolves the State of California from “any and all liability” for funding retirement benefits for its citizens. Citizens of California should be very, very concerned about the California Secure Choice Retirement Savings Program.