Callifornia wants 3% of income for your “future retirement needs”
I guess in the real world of California, residents don’t have the capacity to figure out they may need some money saved up if they want to retire at some point. Trust me, your going to see more of this in the future … states creating retirement savings programs they control for you to dish out as they please in the future.
First off, I wouldn’t trust any state – let alone California – with one dime of my retirement funds. Their plan is to collect 3 percent of income with the “a guarantee that all withheld funds plus investment gains will be available for distribution at retirement age.”
Second, you know the state will change the rules in the future. Something will happen somewhere and it will come to light that some participants really don’t need that retirement money so the state will find better use for it. You know … means testing. Sure, they say the funds will be in a “lock box” but there is no guarantee it will be there later for you. NONE.
Most people realize they can go to a private bank and get the same deal. Of course, you need to have discipline to “pay yourself first” but we know many people in California don’t have discipline. To be clear, the legislature is only talking about demanding private sector employers – who do not provide 401(k) retirement plans – collect 3 percent of the employees paycheck and send it to the state. That’s about 6 million employees in California. Considering there was just over 17 million tax returns submitted in California for the 2011 tax year, that’s a good chunk of the working population.
The total adjusted gross income in California in 2011 was a bit more than $1 trillion. Let’s say the state got their hands on 3 percent of $200 billion. That’s $6 billion a year they would be supposedly managing for the good of the people. I first read this over at Fox News in a story written by Lee Ross, who makes it sound like lawmakers are working on the plan.
California lawmakers are pushing a controversial, first-in-the-nation plan that would require private-sector employers to remove 3 percent from every worker’s paycheck. The money would go into a new state fund with a guarantee that all withheld funds plus investment gains will be available for distribution at retirement age.
If you look at the text of the legislation online, it looks like it passed and the governor signed the bill in Sept. 2012. The summary includes the following…
The bill would require a specified percentage [3 percent] of the annual salary or wages of an eligible employee participating in the program to be deposited in the California Secure Choice Retirement Savings Trust, which would be segregated into a program fund and an administrative fund, both of which would be continuously appropriated to the board for purposes of the act.
Can employees opt-out of the program? The answer seems to be “yes.”
The bill would require the opt-out form disseminated by the Employment Development Department to be used to create an option for employees to elect to opt out of the program, as specified.
So if the employee doesn’t think they have the ability to take 3 percent of their paycheck and put it into a Roth IRA or traditional IRA, what makes the state think they will participate? They give them an easy way to opt-out. Everybody wants their money NOW, so they will just opt-out and keep and/or spend their 3 percent. Remember, the government has been telling people for years it is the communities, states and federal government’s responsibility to take care of them in the future. Why save now for later?
OK, sure. This plan will work for some people. There will be many who say “thanks to that program, I have a bit more money at retirement. I certainly didn’t have the discipline to do it myself, so I’m glad the state did it for me.” That said, there was no indication at all in the legislation about what happens to “your” money if you pass away before retirement, or you die while there is still more cash in “your” account.
Feel free to read the details about the fund by checking out the links above. As usual, union employees are exempt as are government workers, but what’s new? As I read the plan, it’s almost like they set it up to get a very low rate of return, but I guess it might be better than nothing. The state also exempts themselves…
The program fund is privately insured and is not guaranteed by the State of California.
Oh joy.
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My fixed fund account feature returns 4%. Other fund’s rates of return run from 5%+ to 15%+ with some short-term results of 25%.
Anyone who buys into this California system will automatically be doing worse than any reputable private mutual fund investment.
The California politicians will regard this as just another income source to raid and subvert to their own avarice. If anyone does survive to draw on this fund, the lock box will be picked clean and any return will most likely be from a federal bailout. Sound familiar?
Unfortunately, California needs to go bankrupt.
So the state of Mexifornia thinks that duplicating the inefficient, Ponzi scheme that is the Social Security program is a good idea?? Countdown to Connecticut following suit….10, 9, 8…..
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Cali currently cannot even manage the state employee pensions, currently in deficit by a minimum of a woefully underreported $160 BILLION (http://www.foxbusiness.com/government/2013/06/11/california-on-brink-pension-crisis/).?? Connecticut, if you recall, is around $44 billion in deficit to the public pensions (http://connecticut.cbslocal.com/2012/06/18/connecticut-among-states-with-worst-public-pension-deficits/)
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Aside from the fact that, as Steve correctly notes, the state will change the rules, probably “for the children” in the future, if it must be enacted, it should be an “opt in” program for people that don’t have the necessary discipline to save for themselves.??
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Do we really want these economic dunces with their hands on even more of our money??
Assuming the program’s true objective is anything close to the wholesome sales pitch is the same as participating in your own deception.? If I’m going to entrust a bank to safeguard my life savings it’s not going to be the institution that is itself using clever accounting tricks to maintain the illusion that it isn’t bankrupt- which characterizes the fiscal state of both Mexifornia and Corrupticut in my book (I don’t keep two sets either).? It’s nothing more than a trick to legislatively pry more money away from the tax base on the premise that an insolvent bureaucracy is qualified to instruct us on the concept of savings when in fact that apparatus just wants more money for itself.
I wonder if this money will follow you out of the state, if you follow so many to successful states like Texas, or does it just stay to pay for illegals??
I never even considered that it might serve as an escrow account to remit as an exit fee in the instance that a retiree should decide to set off to a more agreeable tax environment.