A new plan approved by the California legislature and sent to Gov. Jerry Brown for approval would force employees of most private companies and small businesses to save for their retirement, with automatic deductions from their paychecks sent to the “California Secure Choice Retirement Savings Program” if they do not have a 401(k) plan at work.
The so-called “public option” retirement plan is a mandatory savings program designed to make sure workers have some assets when they retire.
However, critics have panned the program. The Wall Street Journal devoted a lead editorial to criticizing the plan last week:
A board comprised of Democrats and their nominees—namely, union reps and attorneys—has been charged with fleshing out the program’s details …
The legislation gives the board carte blanche to design and manage the state IRAs. One of the few rules is that the employee contribution must start between 2% and 5% of wages and can only escalate by one percentage point annually up to 10%. Administrative costs after six years are capped at 1% of program assets, which is greater than the operating expenses charged by 90% of IRA equity mutual funds.
The board could invest workers’ money however it chooses, so politicians would be able to direct billions toward their favorite causes.
A legislative analysis notes that “the fiscal impact of this bill is subject to considerable uncertainty.” No kidding. If more workers opt out or contribute less than the board projects, administrative costs could exceed the 1% limit. Taxpayers might have to pick up the difference.
The Journal also warns that other large Democrat-dominated states intend to follow California’s example — and that despite heavy federal intervention in the private finance industry, consumers cannot expect government-run plans to be subject to the same scrutiny.
Given the very poor track record of the state’s existing public employee retirement plans, consumers have reason to worry. CalPERS, for example, recently reported an annual loss of $30.8 billion.
Joel B. Pollak is Senior Editor-at-Large at Breitbart News. His new book, See No Evil: 19 Hard Truths the Left Can’t Handle, is available from Regnery through Amazon. Follow him on Twitter at @joelpollak.