Senate President Pro Tem Kevin de León’s Senate Bill 1234 – or the Secure Choice Act – is a noble effort to impose a defined contribution plan into your budget, but it is neither “secure” nor a “choice.” Hold onto your wallet. (“Here’s how to do more than lament the plight of the poor”; Editorials, Aug. 18)
You know that you should be setting funds aside for your retirement. Some employers may do this for you as an employee benefit, usually in a 401(k) plan, through employee withholdings. The state is proposing to provide a similar plan through withholdings from your paycheck. But are you able to take a reduction in your net paycheck?
SB 1234 will require employers to withhold the plan contributions from your paychecks and send the funds to Sacramento to be invested on your behalf with the intent that the returns will be modest and somewhat guaranteed.
As a result, your take-home pay will be reduced because a compassionate and paternalistic bureaucracy is stepping in to “help you.” Never mind that you have other expenses to address.
California is proposing to withdraw this amount directly from your paycheck. The Secure Choice Act, described by The Sacramento Bee’s editorial board as “a potentially far-reaching social program, with modest costs and limited risks,” should worry taxpayers. In money management, there is rarely a scheme that has minimal costs and limited risk.
We are told your funds will be invested in U.S. Treasury bills. This investment has historically been safe, but it is lackluster. Don’t expect to get back a whole lot more than you put in.
Expect this “secure” investment to morph, as pressures build to provide better yields, and expect it to become more expensive as economic cycles take their tolls. And here’s the kicker: The taxpayers, you, will be responsible for the risks and resulting investment losses.
In the meantime, the state will have established yet another bureaucracy, with multiple employees, who will be earning above market salaries and eventually receiving generous defined benefit pension plan benefits, a pension plan strategy that is nowhere close to what you’ve sacrificed to build over the years.
With poorly maintained roads, severely underfunded pensions and a high-speed rail boondoggle, the Legislature has plenty of fixing to do before it pursues another “do good and feel good” social program.
Press Contact: Amanda Smith @ 714-662-6050, firstname.lastname@example.org
State Senator John Moorlach is a nationally recognized budget, finance, and fiscal policy expert. Moorlach graduated from CA State University in Long Beach in 1977, passed the C.P.A. exam in 1978, and completed his studies for the Certified Financial Planner designation in 1987. He earned a Certificate in Public Finance from the University of Delaware, Division of Continuing Education in 1995, the Certificate of Achievement in Public Plan Policy (CAPPP) in Employee Pensions in 1999 and the Trustees Masters Program in 2003 through the International Foundation of Employee Benefit Plans, and the New Supervisors Training Institute in 2007 from CA State University in Sacramento in cooperation with their Center for California Studies.