Pension Crisis

California Deals with State Pension Crisis by Expanding it to Private Employees

Opponents worry it will be used to prop up ailing state employees' programs


This looks about the right size to hold the returns

Trust California to make what might seem at first glance to be a good idea – setting up an easy way for private workers to contribute to a retirement fund if their employers don't offer it – and turn it into what has the potential to be yet another disaster.

Gov. Jerry Brown signed into law Friday SB1234, which will create the California Secure Choice Retirement Program, allowing private workers to contribute up to 3 percent of their wages into a retirement fund that will be operated by the state.

Oh, my apologies. I worded that poorly. I forgot about the Nanny State twist: Actually, workers will have the money deducted without their permission unless they opt out. And they'll have to keep opting out every couple of years or else they'll be shoved into it. Judy Lin at the Associated Press provides some details:

The program directs employers to withhold 3 percent of their workers' pay unless the employee opts out of the savings program, which can be done every two years. It would be administered by a seven-member board chaired by the state treasurer. The board would select a professional fund manager, which could be a private investment firm or the state's public pension system, to maintain the money.

State Sen. Kevin De Leon, D-Los Angeles, introduced the bill earlier this year in response to what he called the "looming retirement tsunami" as millions of lower-wage workers face financial hardship in their retirement years. He said the program will act as a supplement to Social Security by offering private-sector workers a portable savings plan with a guaranteed return.

"Guaranteed Return." If pension fund economics were a slasher movie (and who says they aren't?) those words would be the equivalent of "The call came from inside the house, ma'am." Those words tell you exactly how much trouble you're in. I looked through the legislation and couldn't find exactly what sort of guaranteed rate of return the fund is supposed to offer, but then like most financial legislation, half of it reads like another language anyway. But as a reminder, the rate of return target for CalPERS, the state's pension fund for government workers, was 1 percent last year. Its target is 7.5 percent. The state and municipalities are obligated to help fund the gap, thus the pension crisis.

State Senator Mimi Walters, R-33, wrote a lengthy takedown of the bill on the blog Fox & Hounds, not that it mattered:

Quite possibly the worst bill to make its way out of the legislature this year is Senate Bill 1234 (Kevin De Leon, D-Los Angeles). This bill would allow the state government to enter the private pension business under the pretense of "sharing the wealth" of California's public employee pension systems.

But California has amassed a terrible track record when it comes to maintaining its public pension systems; the systems are currently a combined $240-$500 billion in debt.  And because those public employees are obligated to be paid first from the pool of investment dollars, SB 1234 looks like nothing more than a cynical effort to prop up the floundering public employee pension debt with new funds from private investors, sent in by employers who are forced to participate under penalty of law.

According to the AP report, the program will not be implemented unless the savings program is projected to be self-sustaining. That would be a relief, except the same limitation was placed on high-speed rail construction and yet the state is moving forward despite evidence that the train will need significant subsidies to operate.

On the plus side, Brown vetoed efforts to resurrect redevelopment agencies through changes to Infrastructure Financing Districts.

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  1. Any bets on how long before this money is stolen to pay for the California budget deficit?

    This is pathetic. They can’t pay for public employee pensions and people are rightly pissed at the slugs getting this huge pensions. So the solution is to offer an unaffordable pension to everyone.

    There really is no hope for California. And probably not for the nation.

    1. Stealing the money is the point of the exercise. Just cloak it in legalise and compulsion first.

    2. Any bets on how long before this money is stolen to pay for the California budget deficit?

      I’m going with “until the next budget is passed.”

      According to the AP report, the program will not be implemented unless the savings program is projected to be self-sustaining.

      No problem. Just assume 14% annual returns.

    3. I’m waiting to hear the excuses for slashing the pensions of private employees (will happen when these private employees retire, which could be 30 years from now). Oh, CA is broke, so you have to make a sacrifice and take out much less than you put in (but CA state employees will get everything promised). Oh no, you illegally spiked your pension by working long hours in your last year, and social security is based on the average of the last 35 years of work (adjusted for inflation, which a cap each year). Oh no, you’ve moved out of state. The communist party only looks out for itself. It’s a rule of life.

  2. Oh my god. Could this be any more transparently obvious? There will be no “retirement fund”. This is just a disguised money grab. Somewhere down the line, the funds will be put to use to plug gaps in the budget, and the opt-out will be removed, making it a de facto tax.

  3. . I forgot about the Nanny State twist: Actually, workers will have the money deducted without their permission unless they opt out.

    What. The. Deuce?

    How is this not extortion, theft, or both?

    1. “Fuck you, that’s how.”

      1. Fuck you, that’s my line!

      2. I’ll just leave this in every thread that contains California government and “fuck you, that’s why/how”.

    2. Fuck you! That’s how!

      1. There’s been a rift in the space time continuum!

    3. I like this part…

      Oh, my apologies. I worded that poorly.

      Reminded me immediate of Jules…
      “Oh, I’m sorry, did I break your concentration?”

    4. In the same way that taxes are not?

  4. On the plus side, Brown vetoed efforts to resurrect redevelopment agencies through changes to Infrastructure Financing Districts.

    A lot of good people lost jobs when they shut those RDAs down.

    1. Well, a lot of people did anyway.

    2. A lot of good people lost jobs taxpayer funded sinecures when they shut those RDAs down.


  5. Somebody in the Pension Benefit Guaranty Corporation is watching this with bated breath, trust me.

    1. Guarantee the most populous state’s defined benefit pensions to its private sector. Oh man I wish I was at PBGC to see their reaction when this was first introduced.

      Also, obviously depending on the promised benefits, 3% for a defined pension could be the death knell for many smaller companies’ plans.

  6. Private people have the option of opting out of paying into a system that by law must pay government employees first?

    What a deal!

  7. Fuck California

  8. I am Governor Jerry Brown
    My aura smiles
    And never frowns
    Soon I will be president…

    Carter Power will soon go away
    I will be Fuhrer one day
    I will command all of you
    Your kids will meditate in school
    Your kids will meditate in school!

    California Uber Alles
    California Uber Alles
    Uber Alles California
    Uber Alles California

    Zen fascists will control you
    100% natural
    You will jog for the master race
    And always wear the happy face

    Close your eyes, can’t happen here
    Big Bro’ on white horse is near
    The hippies won’t come back you say
    Mellow out or you will pay
    Mellow out or you will pay!


    Now it is 1984
    Knock-knock at your front door
    It’s the suede/denim secret police
    They have come for your uncool niece

    Come quietly to the camp
    You’d look nice as a drawstring lamp
    Don’t you worry, it’s only a shower
    For your clothes here’s a pretty flower.

    DIE on organic poison gas
    Serpent’s egg’s already hatched
    You will croak, you little clown
    When you mess with President Brown
    When you mess with President Brown

  9. And yet when my fellow Californians snort derisively at the ignorance and backwardness of southerners or midwesterners or anyone from the great expanse of flyover between here and DC/NY, they do so without any sense of irony at how fucking mismanaged and teetering on collapse their bloated socialist utopia is.

    1. The state can’t even get the weather right. It was 103 degrees here yesterday!

      1. Yeah, you really should get the hell out of the Valley. Although, having said that, Thousand Oaks ain’t much better today. I gotta keep bathing my fermenting homebrew in ice this week to keep the temp from breaching 70.

        1. You should know better than to try and brew in Thousand Oaks in September. It’s almost always brutally hot.

      2. Is it just me or have the weather forecasts been especially terrible this summer? It’s like the algorithm being used has too short a timeframe and the forecasts end up being updated really frequently. That sounds like it would make the forecasts more accurate, but when you need a reasonable expectation of what the weather will be like in 3 days it really sucks.

  10. I wonder what happens if you do “opt out”. Maybe a visit from Da Union asking you why you aren’t being an economic patriot?

    1. As I intend to opt out at the first and every opportunity, I’ll let you know.

  11. in 5 years there will be mandatory matching by the employer.

    also SB 1234? that’s the kind of number an idiot has on his luggage.

    1. dammit you beat me to the Spaceballs reference.

  12. Fuck. My co-worker’s escape plan to Florida is looking better and better every single day.

    1. C’mon down. Bring your money, we’ll let you keep it, minus 7.5% on all sales transactions.

      1. It’s only 6% where I live. You must live in one of them there cities.

        1. Taxahassee.

  13. a portable savings plan with a guaranteed return.

    A projected return which is totally realistic and easily achievable.

  14. And I continually advise my Swiss masters, er…employers, to get every employee position we can out of Kalifornia. Now they know why.

  15. The good news: the courts will likely find this ridiculous scheme to be preempted by ERISA.

    1. this.

  16. I thought IQ tests for employees were illegal.

  17. And how many Californians are going to be surprised when they find their paychecks getting smaller due to this law because they have no idea about it?

    And what happens if you finally come to your senses and leave the state to work elsewhere? Is the money you put in still yours or will it just go down the sinkhole into some teacher’s pocket?

    1. Is the money you put in still yours


      *catches breath*


  18. These guys really do seem to know whats going on over there.

  19. It’s brilliant and it will work. It’s just a watered down state-level version of the original Social Security scam. And that’s still going strong.

  20. Please see 100008, where the actual “benefit” is defined. This is a defined contribution plan, not a defined benefit plan.

  21. Lawsuit potential.

    All that’s needed is one guy to sue the state of California to get his money back for providing him inadequate notice of the “opt-out” timeframe.

  22. It just shows how out of touch with reality that the CA Democratic party is that they think that 3% of income, unmatched, invested in low risk instruments, is going to amount to much of anything.

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