California. Land of the gold rush. Home of Hollyweird and Proposition 13. Land of stars, glamor and a bankrupt state government. It was just this past May when the state deficit was projected to hit $16 billion. At that time, Governor Moonbeam — sorry, Governor Jerry Brown said more cuts were needed. This is a crisis that could have been averted with some smart decisions by the state government and some just as smart choices by the electorate.
Now comes news that California has created a state-run private pension plan. Yep, you read that right. California wants to manage your private pension plan if you live there. Now, this isn’t offered to everyone who lives in California. No, it’s offered for those six million or so workers who aren’t offered a pension plan by their private sector employer. Okay, sounds good, right?
First of all, if you meet the requirements for the plan, your employer will automatically withhold 3% of your paycheck UNLESS you opt out. Yep, it’s one of those nasty little programs that require you to act if you do NOT want to be involved instead of following what would seem to be the logical path of letting you opt in if you wanted to be included. If that isn’t bad enough, you have to exercise the option every two years. It isn’t a simple, you’re are opted out unless and until you decide to opt back in.
Now, my next impulse is to wonder where the money is going to come from on the employer level. No, not the 3% of the salary, but the money needed to have that money withdrawn, reported, transferred into the state-run program, monitored, etc. What about making sure the proper paperwork is filed when an employee leaves his position with the company? Or even the adjustment of the amount taken out when there is a change in the employee’s salary level?
Then there is the question of notification. Is the employer going to be required to notify each employee about their rights, especially regarding the right to opt out or is this going to be one of those “it’s the law and you ought to know about it and ignorance is no excuse” sort of things? I’ve been through the employer notification of retirement benefits changing where my mother’s concerned. She retired from a major medical center and the means used to notify the retirees involved was to send a letter through the mails. No confirmation of delivery was required. No emails were sent. The former employer met the minimum legal requirement by mailing to the last known address for the retirees but put such a short period of time for them to opt in or out of the new, vastly decreased benefits (it was either accept the much lower benefit or get nothing) that many of them were left out in the cold. Since this was insurance that was involved, it hurt a number of them.
Or is the state going to send out notice based on the last year state income tax filings? Either way, money has to be spent — either by the state which means taxpayer dollars or by the employer and that means either passing the cost on to the employees by decreasing other benefits or to the customers meaning increased prices. But that’s never really explained by Governor Moonbeam.
But there’s more. The plan can be administered by a professional fund manager — someone who will have to be paid for his services and where does that money come from — or by the state’s public pension system. This is the same system that has had financial issues before. So, suuuuuure I’d want them managing my retirement money.
Okay, there are those who say this really isn’t a retirement plan but more like a savings account. No matter what you call it, it is simply yet one more instance of the government trying to force people to do something they either don’t want to or can’t.
Let’s face it, that 3% salary holdout could very adversely affect a lot of people. How many of them are already living paycheck to paycheck, just in order to keep a roof over their heads? How many of them have already cut their bills to the bone and have no margin of error? Those folks aren’t worrying about what is going to happen in five, ten or fifteen years down the road. No, they are worrying about making sure they have food on the table and roof over their heads right now.
I can hear those of you out there in support of this law saying that those are the ones who can opt out. But what about those who have a change in circumstance? Can you opt out at any time? I hope so. I don’t know. But that same question applies in the reverse. What if someone who has opted out suffers a change in circumstances where they now realize they need to be in the plan? The opted out a month or more ago and now have to wait until the two year period has elapsed before they can change their status.
I understand California is worried about the influx of retirees it will have as its population ages. This is something every state is facing. But I would be seriously worried if I lived there and thought a part of this very broken — and broke — state government might be administering my money, money I am supposed to be able to access when I retire. I’d worry about the possibility of the Peter borrowing from Paul and not paying him back.
Does this mean I think California, or any other state, should just let those without retirement plans rot? No. But there are other ways to assist them now, before they retire. My objection is in implementing a plan that will cost an already cash-strapped state money it doesn’t have. My objection lies in forcing someone to opt out of something instead of into it. My objection is in government taking yet another step toward becoming a full-fledged mommy state.
Edited to add: Welcome to everyone coming over from Insty. Thanks for the link!