Pebble Beach, CA Out With AB 889 And SB 411, In With Retirement Plans For Low Income Workers, Says Governor Jerry Brownby Richard Kuehn on 10/01/12
Governor Jerry Brown signed into law a number of sweeping reforms over the past few weeks and he also, thankfully, vetoed a number of others including AB 889 and SB 411. These two bills, which I lobbied vigorously against on a number of trips to Sacramento, would have greatly increased the cost for senior citizens and caregivers, most of which can ill afford to absorb more increases in their cost of living. One of the most controversial laws that the governor did sign into law was SB 1234, which is called the California Secure Choice Retirement Plan. This will enable more than 6 million lower-income Californians who work in the private sector for employers without retirement plans to contribute part of their pay to a retirement savings fund. Employers will be required to withhold 3% of employee pay unless they opt out of the program, which they have the option to do once every seven years. Although I applaud the governor's efforts to give workers something other than Social Security for retirement, it seems that if the program targets those with low incomes, the opt out level will be quite high. Another problem was pointed out in a recent Monterey Herald article. I've written a number of times on my blog about the fledgling CalPers retirement system, which posted a rate of return of just 1% in its last fiscal year, a fraction of its goal of 7.5% per year. It now faces a $100 billion shortfall. We certainly don't want this to happen to the new fund. To guard against this, there are plans to invest the money in low-risk investments tied to the T-bill. But these rates are so low that by doing so plan participants won't be able to rapidly build a large nest egg for retirement. Savings rates aren't even keeping up with inflation in many safe investments.