California is First (to Offer State-Managed Pensions for the Private Sector)
California often prides itself on doing things first. Well world, here's another first. Today, Governor Jerry Brown signed a law that would create pensions for 6.3 million pensionless private sector employees. Bloomberg writes:
The law is aimed at businesses with five or more employees that don’t offer pensions or 401(k) savings programs. The law requires companies to contribute 3 percent of a worker’s salary to a retirement account. Workers will be enrolled in the program unless they choose to opt out.
In terms of administration alone, I see two key burdens for small businesses and employees. First, the law would require businesses with at least five employees to participate in the state's program or offer their own. Employers may volunteer contributions to the fund, but they are not required to do so.
Second, automatic enrollment is always worrisome. That is the case for employees whom the state automatically enrolled in its new program. Opting out of state-run programs is notoriously difficult and bureaucratic. Bloomberg notes that the average income of these 6.3 million new members is $46,420. My guess is that many at that income level would want to recapture the automatic $1,400 annual paycheck deduction, but for whatever reason, they will not attempt to do so.
On top of that, private pension management firms will compete with the state's own public employee pension system (CalPERS) to manage these additional assets. CalPERS may be the nation's largest public pension system, but its investments have unquestionably under-performed. From 1982-1998, CalPERS’s averaged a 13.4% average annual rate of return. From 1999-2012, it has averaged only 5.7%. CalPERS returned only 1% on its investments last fiscal year. The Sacramento Bee writes:
Unlike public pension funds that can pass on their investment shortfalls to taxpayers, private underwriters would assume any losses by the private sector fund.
The bidding process between the state's pension system and private management firms must be entirely transparent and above board. If CalPERS does win, it would add the up to 6.3 million private sector members to its existing 1.6 million membership. And it would add up to $6.6 billion to the $242 billion in assets it manages for California's state and local employees.
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Comments:
Aug '10
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
Typical conservative heartlessness. You hide behind your figures and graphs but all you really care about is getting to watch the destitute elderly die of exposure in the streets!
BTW, I'm currently stuck with a government retirement program that I was automatically enrolled in. How do I go about opting out of social security?
Oct '10
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
One more reason for companies to move out of California.
Our state gummint insists on driving more and more nails into our business coffin.
Jun '10
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
It seems refusing the State's "offer" would be a little like refusing an offer from Don Corleone.
Apr '12
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
As a small business owner myself, this would be one more reason to stay at 4 employees and outsource all the work I could. The extra admin and time and then the added cost in these client rare times woukd be iverwhelming.
govt officials doing these programs should be required to run a small business for a year and meet a payroll every two weeks. If they do not meet payroll, they should have to get the amount deducted from their own pay until they have to take a line of credit with the bank and go into debt to keep the business going.
Then, and only then, should they be allowed at the levers of government. Goodbye California, nice knowing you.
Apr '12
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
The worst of both worlds.
Nov '10
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
Leaving CA is a short term measure. The old adage of look at CA and you see the US in 5 years has a lot of merit. This type of program, now in a "state lab" will become federal law within the decade and is the first step toward integrating all of the defined contribution and benefit plans into social security all run by the Feds. This is the only way to save social security and get hands on money for "social justice" schemes. The smoking gun for this can be found in Cass Susstein's book, "Nudge" and we all know what he is up to in the Obama administration today. He makes it sound all so logical.
Mar '12
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
Only took two minutes of googling to find this headline from The Telegraph in 2008...
Argentina seizes pension funds to pay debts. Who's next?
By Ambrose Evans-Pritchard Economics Last updated: October 21st, 2008
Here is a warning to us all. The Argentine state is taking control of the country's privately-managed pension funds in a drastic move to raise cash.
Aug '12
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
Only idiot government bureaucrats who've never owned or run a small business would come up with this idea.
May '11
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
California's pension system is a Ponzi scheme, pure and simple. It has reached the point (i.e., bankruptcy) where private sector Ponzi schemes go bust and people go to jail. When the Ponzi scheme is run by the state, however, it can pass a law forcing more people into the bottom of the pyramid, keeping it alive for a while longer. So we will get more workers contributing to the scheme, and their contributions will be used to pay current benefits. Those sheep, pardon me workers, who are forced into the plan will never see a penny out of it. The civility code prevents me from saying what I really think of those sheep, but if they do not rise up and revolt then they deserve what they get.
Apr '11
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
Not sure about the "get what they deservet" bit, but I sure would be happy with them being forced to stay in CA after the politicians they elected ruin that state. This way they don't spread their political pestilence to other, unsuspecting parts of the country.
Edited on September 29, 2012 at 4:15pmSep '12
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
CalPERS has done a yeoman's job of managing the public pension fund, but a yeoman's job is all that even the best pension fund managers can do.
What bothers me about this is the legion of false assumptions going into the CA law, namely, that prevailing political, economic and financial conditions will be the same tomorrow as they are today in perpetuity. Not so, very much not so. Read some history. Before the last 70 years, human life was mostly nasty, brutish and short. Those of us born into this window of blessings have enjoyed the kind of lives that would have convinced Thomas Moore to become a devout disciple of Adam Smith. I don't know and can't guess when this will change, but I hope my kids won't find out. My grandkids, well, I hope my kids teach them how to shoot straight.
Edited on September 29, 2012 at 5:49pmMay '11
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
ctruppi
Not sure about the "get what they deservet" bit...
They keep voting for these idiots, and they will suffer the forseeable consequences. Sounds like "just desserts" to me. Meanwhile, I'm moving to Nevada in the next 3 years or so. Unfortunately, a lot of the idiots who have ruined California will do the same, and will bring their politics with them.
Sep '12
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
Is this constitutional under the CA constitution for the state to be able to extort business owners like this? And even if it is not constitutional, would the CA Supreme Court find it constitutional anyway, under some theory that the CA constitution is a "living document"?
Just this morning I saw a bumper sticker on the Legal Insurrection blog which applies: The welfare of humanity is always the alibi of tyrants.
May '11
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
Someone ought to buy Governor Brown a copy of Thomas Sowell's "Basic Economics," and smack him upside the head with it. Really hard.
Apr '11
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
Oh, this will end well.
Sep '10
Re: California is First (to Offer State-Managed Pensions for the Private Sector)
Why bother, reality will do it to the entire state.