Next week, the California Legislature is set to vote on a plan, nearly four years in the making, to automatically enroll most uncovered workers in individual retirement savings accounts. Employee advocates are confident the measure will pass, and Gov. Jerry Brown is expected to sign it. When that happens, Californians will gain more security — and the rest of the nation will gain a national model for promoting retirement savings.There's more:
Under the plan, uncovered employees would have up to 5 percent of pay deducted from their paychecks, unless they opted out. Those contributions would be pooled and managed by investment professionals chosen by the state through a bidding process. The plan, called the California Secure Choice Retirement Program, would be overseen by a board of public- and private-sector leaders, appointed by the governor and the Legislature in 2012, when the legislative effort first got underway.
The benefits of such a plan are the lower fees and higher returns that come with pooled contributions and professional management. The burden on employers is minimal: They have to deduct the employees’ contributions from paychecks. The risks to the state are also minimal: Because the accounts are financed entirely with employee contributions, they do not present the fiscal problems associated with many public pension funds.If California can't run a public pension plan why would they be able to run a 401K plan???? Is the SEC going to regulate the corrupt people running California??? This is insanity.
One last hurdle is an 11th-hour lobbying blitz, directed at Mr. Brown, by the Investment Company Institute, the trade group for the mutual fund industry. The industry is obviously worried that the plan, with fees that are both low and transparent, will drive down fees industrywide.
The industry is pushing for indefinite delay, mainly claiming that the plan is legally ambiguous. In fact, one of the reasons it has taken California so long to get to this point is the time and effort it put into clarifying the ways in which a state-sponsored plan would mesh with federal pension law. If, by some remote chance, an unforeseen legal obstacle is encountered, the California law itself calls for a halt to the plan. There is, in brief, no reason to delay.
The California plan is not perfect. It is designed to branch out slowly from a supersafe Treasury bond investment into a more complete menu of investment options.