Monday, February 19, 2018

California Logic

In California it might soon be illegal for waiters and waitresses to place a straw on your table without being asked first (AB 1884). It may also soon be a requirement to have a backup battery system for your home garage door opener and failure to have one will result in a $1,000 fine (SB 969). So, in this bastion of rationality we call The Golden State it should come as no surprise when the legislature decides to create an unnecessary retirement plan for all residents.

Never mind the fact that a federal version already exists and is in place and was designed to provide a safety net for those not covered by any other form of retirement savings(aka Social Security). And overlook the Federal tax incentives set up to encourage those not covered by employer plans to set funds aside themselves in the form of deductible IRA contributions, Roth accounts, and the Federal Savings credit. Also, the ability to purchase annuities on the open market is available to anyone so inclined.

Let’s further pretend that the state would be a good shepherd of your retirement monies and that the California Public Retirement system covering state employees and California State Teacher’s retirement system covering teachers aren’t severely underfunded.

Nope, what we need is another state run retirement system, this one for all residents.

The California Secure Choice program would be voluntary (but private sector workers would be automatically enrolled) and ostensibly will serve to provide retirement plans for those underserved by all the other options available. There are two big issues with this:

First, the costs to taxpayers is huge. The program has requested a “loan” from the state of $170 Million for startup staff, consultants, and overhead. Ask yourself this: If this loan were to actually be repaid, where would it come from? Answer: fees assessed the savers.

Second, it’s illegal. According to experts, the Secure Choice plan appears to violate the Federal law known as ERISA. President Obama issued a regulatory interpretation that some argue allows for an exception for the California plan, however President Trump rescinded that regulation. So at this point in time the program appears to violate Federal law, and for Congress to change ERISA to allow such plans is highly unlikely.

So, what we are going to get, “good and hard” as H. L. Mencken might have said, is a new program to fleece the public and benefit a group of consultants and bureaucrats for a period of time. Then when its proven to be unworkable, it will be someone else’s fault.