Instead of addressing the estimated $600 billion in unfunded liabilities in California’s beleaguered public-employee pension system, Democrats in Sacramento have instead decided to “solve” a growing pension crisis in the private sector. In 2012, Governor Jerry Brown signed a measure that created an investment board and authorized a “feasibility study” of various options for a state-backed private-pension system. That study came out last month, and the legislature is now vetting bills that would put its recommendations into action.
The plans under consideration would mandate participation in the new state-run retirement system for firms with five or more workers, though the workers themselves could opt out. Employers that don’t comply would face fines and other penalties. They would automatically deduct 3 percent to 5 percent of each employee’s earnings (the exact percentage is not yet determined) and deposit the money in an IRA, likely managed by the California Public Employees’ Retirement System (CalPERS)—the same union-controlled government entity that uses its investment muscle to promote liberal causes. Unlike the public-employee pension plans (or even Social Security), however, the envisioned private-pension system is a 401(k)-style, defined-contribution plan. It could not accumulate unfunded liabilities, at least in its current design.
After winning assurances that firms won’t be liable for any losses, the state’s business community has stayed mostly neutral on the scheme. A state senate analysis in support of the bill points to a genuine problem. “Today, due to inadequate retirement savings, nearly 50 percent of middle-income California workers will face living in or near poverty during their senior years,” it says. Social Security is inadequate, and more than 7 million private-sector workers “do not have access to a retirement savings plan through their jobs.”
The obvious rebuttals: workers do have access to such plans in the private sector, and it’s not the government’s job to create such a program. Low-income earners might not be thrilled to see their paychecks decline by 5 percent if the new proposal takes effect. Additionally, employers would face unexpected costs and red tape. The plan would almost certainly lead private employers with their own pension programs to dump their workers onto the new state system. And a government-administered pension system would likely crowd out private companies that manage and sell 401(k) investments.
The state’s public-sector unions backed Brown’s bill. As it turns out, union-friendly politicians hatched the private-sector pension plan a few years ago as a way to deflect attention from the public system’s massive unfunded liabilities. The idea was to give private-sector workers some modest benefit as a way to dampen public support for pension reforms.
Union members’ pensions are enormous. Public-safety officials in California typically receive the “3 percent at 50” formula, which means they (and their spouses) are guaranteed 3 percent of their income multiplied by the number of years worked, available at age 50, which translates to 90 percent of their final years’ pay after 30 years. And that’s before myriad pension-spiking gimmicks. Other public employees often receive formulas that guarantee 80 percent or more of their final pay, which is quite generous. The state’s $100,000 Pension Club is expanding rapidly for precisely that reason. Recently, the San Jose Mercury News reported on Alameda County’s top bureaucrat retiring with a $500,000 annual pension.
Should California go ahead and put the new system into place, and see positive results, expect political pressure to build to expand it into a bigger program—one that could eventually put taxpayers on the hook. Would you trust this crowd to solve any pension crisis?
And yet another upcoming reason to pull companies out of Kalifornia and move to Texas. Jerry the Stupid strikes again!
Just another dumb plan to hide the under funded CalPERS plan. Calipers lied about earnings from investments. 21/2 percent real and 71/2 percent claimed. That is why you all should stop re-electing these jerks.
Sounds like an Argentine/Cypress style “bail-in” of the pension funds using the savings of non-members.
A glaring example of who works for whom, at least according to the conventional wisdom within the political class.
We used to call such acts Grand Theft!, and the perpetrators were dealt with appropriately.
Why is Calpers so far in debt, they are doing the investment of the retirement money. Moonbeam will do whatever he can to chase everyone out of the state. We will have to make up the difference in tax money for the fact that he is making sure he covers the money needed to back the unions. I would love to have their retirement, most end up getting more than they made. Jov. Brown will say that there is nothing wrong and it is all under control so he can rob honest citizens blind. He we come Detroit you have nothing on us, bankruptcy.
Where does the legislature get the authority to create and run a private employee retirement system? Does anyone believe that, should such a plan come to fruition, the employee wages confiscated and ostensibly deposited in “private retirement accounts” would be left alone? Rather, how long would it be until the pols concocted a scheme to use that private money to prop up the failing CALPERS system? This is another bad act by government, completely deserved by the public – you keep electing this bunch of vermin.
Tell EVERYONE you know about this. Then remind them that voting for a democrat is a vote for CONFISCATED money. In general taxes, lost jobs ($15), increased property tax, more to ILLEGALS and now maybe their Private retirement funds.