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.