California’s New Push for Mandatory Retirement Savings

According to a recent CNBC article, “More than half of American workers — roughly 55 million — don’t have access to a retirement savings plan on the job.” While they’re eligible for individual retirement accounts through an investment company, less than a third of them have one.

Now a bill currently up for vote in the California legislature would ostensibly improve coverage for California workers. It would automatically enroll employees not covered by a retirement plan at work into a state-sponsored plan. The plan would be administered by California Secure Choice Retirement Savings Investment Board, an entity staffed with political appointees and state employees.

Since 2012, more than half of state legislatures have entertained bills that would establish government-run retirement plans for private-sector workers. Illinois and Oregon have also enacted legislation approving state-run retirement programs which are scheduled to begin accepting enrollees next year.

It seems clear these state plans represent attempts to compensate for employees’ shrinking retirement options through their employers. Yet while the usual suspects like AARP applaud such programs, the Securities Industry and Financial Markets Association (SIFMA) opposes them.

Kim Chamberlain, SIFMA’s associate general counsel, stated in correspondence with state lawmakers that in the absence of a workplace retirement plan, Californians still have adequate investment options. She’s referring, of course, to traditional and Roth IRAs.  But it’s apparent Chamberlain’s main objection to the proposed California legislation is that SIFMA would prefer government stay out of the investment business.

Obviously her motives are self-serving, but in one respect I can see her point. For the first three years of its operation, it’s expected the state-run plan will invest in Treasuries and “other low-risk debt securities,” while the brain trust at the new California Board scouts around for additional investment options. We can only wish them luck, and hope they improve on the troubled investment record of the California Public Employees’ Retirement System (CalPers).

And, by the way, before California Secure Choice Retirement Savings Board members begin work (provided the proposed legislation is enacted), someone ought to notify them that U.S. Treasuries are not performing well. Bond salesman Bill Gross has been declaring for some time now, “Record-low bond yields aren’t worth the risk.”  And the yield on a ten-year Treasury note, despite a subsequent tepid recovery, fell to a record low on July 6 of this year.

This proposed California legislation comes equipped with the usual arrogant bureaucratic provisions. Workers will automatically be enrolled in the program unless they specifically opt out. And unless they select a contribution amount, three percent of their salary will automatically be deducted from their paycheck.

There you have it: another example of government telling citizens how to invest, and even how much. While the folks at the proposed California Retirement Board claim they want California employees to know they have investment choices, they’re not doing very much to disclose all their choices.

For instance, it’s unlikely they’ll offer a plan that gives their involuntary investors the option to hold not just paper- and dollar-based investments but also tangible assets, like the gold IRAs that are available to them today.  Because the bottom line is you can be sure, regardless of which state you happen to live in, no mandatory program structured around paper assets will provide you a sufficient return, year after year, that will allow you to retire in the security and comfort we all dream of after decades of hard work.