In the News 2013
Los Angeles Times, August 7, 2012
SACRAMENTO — State legislation to start a retirement plan for low-income workers who get no pensions and rely only on Social Security has run into a storm of opposition from business groups in Sacramento.
The controversial proposal would require private employers to withhold about 3% of the wages of employees who participate. The state would collect the money, invest it and eventually provide a modest sum to retirees who don't have traditional company pensions or 401(k) retirement plans.
But opponents contend that the state has a poor record of managing its existing public pensions and say the proposal duplicates retirement savings programs already offered by banks, insurance companies and brokerages.
At issue is legislation by state Sen. Kevin de Leon (D-Los Angeles). His bill, SB 1234, has sailed through the state Senate and two Assembly committees. But the energized business opposition and some slipping support among Democrats may signal a tough road ahead as the last month of this year's legislative session gets underway.
A crucial vote is set for as early as Wednesday before the Assembly Appropriations Committee.
A massive coalition of dozens of business lobbyists — including the California Chamber of Commerce, the Farm Bureau and groups representing insurers, retailers and the financial securities industry — is mounting an all-out effort to stop the legislation.
De Leon said the idea is to head off a tidal wave of "discarded seniors" forced to retire with little in savings or other income to supplement Social Security. "These are people who never asked for a dime," he said.
"They worked their fingers to the bone and have never built up any assets. Once they retire because they cannot physically work, they will be dependent on the taxpayers" with no retirement investment funds to help, De Leon said.
But Richard Wiebe, a spokesman for the life insurance industry, opposes the legislation.
"This could be one of the most far-reaching bills affecting small businesses this session," he said. "They would bear the brunt of the costs."
If the Legislature approves the plan, the final decision would end up with Democratic Gov. Jerry Brown, who has taken no public position on whether he would sign the bill or veto it.
"It's going to be a fight in Appropriations" because of the potential cost to taxpayers, said Scott Hauge, president of Small Business California, which opposes the bill. "But even if it gets through, I don't know how the governor could sign something like that."
Not all small-business owners share Hauge's concerns about the plan. Co-owner John Kasparian of Round the Clock Cleaners Inc. said he supports the concept of a state-run retirement plan that would provide a low-cost benefit for 12 full-time workers at his three dry-cleaning stores in the Pasadena area.
"It's a good idea. It's cost-effective and important for the employees who don't have anything right now" for extra income in retirement, Kasparian said. "If the benefits outweigh any expenses, then it will be worth it."
The need to provide more people with a modicum of retirement security is crucial and growing, experts say.
"A lot of middle-class workers face being poor in retirement. They're downwardly mobile as they age," said Teresa Ghilarducci, a pension specialist at the New School for Social Research in New York.
Between 2008 and 2010, an estimated 55% of California private-sector employees ages 25 to 64 did not work for an employer who sponsored some type of retirement plan, according to a study released in June by the UC Berkeley Center for Labor Research and Education. The trend has worsened over the last decade, the study said.
As envisioned, the plan in its first year of operation would collect and invest an estimated $7 billion in contributions from the paychecks of more than 6 million mainly low-wage earners, whose employers don't offer traditional pensions or 401(k)-type savings accounts.
Employers with as few as five workers would be required to offer the benefit, but they would not be obligated to make additional contributions to their employees' individual retirement accounts. Neither employers nor state government would have any responsibility or liability for the proposed retirement system. Investments would be tied to the historical rate of return of 30-year U.S. Treasury bonds.