SACRAMENTO, Calif. -- Democratic lawmakers on Friday approved a bill that would create the nation's first state-run retirement program for private-sector workers over the objection of Republicans who said it creates a new liability for taxpayers.
The Assembly passed SB1234 on a 44-24 vote, returning it to the Senate for a final vote. Democratic supporters say the bill would establish the California Secure Choice Retirement Savings Program for nearly 7 million low-income workers whose private employers don't offer retirement plans.
According to the bill's author, Sen. Kevin de Leon, D-Los Angeles, the program directs employers to withhold 3 percent of their workers' pay unless the employee opts out of the savings program. It would be administered by a seven-member board chaired by the state treasurer.
Democrats said the program gives workers more savings options, particularly women working low-paying jobs. Supporters say it will not cost the state money because it will be backed by underwriters.
But Republicans said they have too many questions about the program and note that if the underwriter fails to meet investment targets, taxpayers and employers could be held responsible for covering investment losses and administrative overhead.
"We're putting the cart before the horse," said GOP Assemblyman Mike Morrell of Rancho Cucamonga.
Assemblyman Tom Ammiano, D-San Francisco, defended the bill, saying it sets up a fiscally responsible program. He noted it would not be implemented unless the savings program is exempt from federal rules that cover private-sector defined benefit plans. Such plans have to meet minimum standards under the federal Employee Retirement Income Security Act.
The bill also requires the board to submit an annual audit. It is opposed by businesses, insurance companies and financial services firms.
"I encourage you not to be fooled by the Wall Street subterfuge," Ammiano said. "This is a responsible bill that will be a tremendous benefit for working Californians."
Morrell said low-income workers might be better off financially if they put after-tax earnings into a Roth IRA, which would allow them to earn investments tax-free.
He also expressed concern that the fund could be administered by the California Public Employees' Retirement System. The state's largest pension fund posted an annual return of just 1 percent last year, missing its own long-term annual target of 7.5 percent.
"CalPERS is going to request to manage this money, and I know they've done a pretty good job when the stock market was booming, but the last few years they have not done very well and that's another concern," Morrell said.
De Leon introduced the bill earlier this year in response to what he called the "looming retirement tsunami" as millions of low-wage workers face financial hardship in their retirement years. He said the program would act as a supplement to Social Security by offering private-sector workers a portable savings plan with a guaranteed return.
"One of the most common myths being perpetrated about this bill is that it creates a pension for private-sector workers," Ammiano said.
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