The Investment Company Institute, a trade group for the fund industry, is urging Gov. Jerry Brown of California to block a bill making its way through the state legislature that would create an auto-enrolling, supplemental retirement savings program for workers.
ICI President and CEO Paul Schott Stevens warned Brown in a Monday letter to “carefully examine the costs and risks” of the legislation to implement the California Secure Choice Retirement Savings Program and to “stop it” before it is implemented.
The bill, S. 1234, sponsored by Sen. Kevin DeLeon, is making its way through the State Assembly during the last three weeks of the state’s legislative session, a spokesman for DeLeon told ThinkAdvisor in a Monday email message, with amendments to the bill to be announced by the end of the week. A vote on the bill will likely occur during the three-week period.
Stevens told Brown that the potential amendments to the bill “appear unlikely to affect ICI’s economic analysis of the program’s risks and costs,” arguing that “Secure Choice — as currently structured — does not present a viable means of expanding meaningful retirement savings for private-sector workers in California and carries tremendous risks that could put taxpayers on the hook for a bailout.”
Stevens went on to state that the analysis used by the California Secure Choice Retirement Savings Investment Board to advance the plan “paints an overly optimistic picture of this program’s success and dangerously understates the economic risks to the state of California. Implementing Secure Choice as it stands now could damage California’s fiscal health and create a new financial liability for state taxpayers.”
The program would automatically enroll private-sector workers who don’t have employer-sponsored retirement plans in a state-run plan funded through payroll deductions.
The Investment Board met on March 28 and voted to move forward on the state-run plan, despite objections from ICI and others.
ICI told Brown that the ultimate cost of implementing the California Secure Choice Program “depends on many factors, including the opt-out and contribution rates of enrolled workers; legal and compliance costs relating to various federal laws; administrative costs in setting up and maintaining the program; and potentially significant costs that may arise later if market returns generated by the program’s investments are insufficient to cover promised benefits to participating workers.”
Said Stevens: “California taxpayers or Secure Choice Program participants — or most likely both — will find themselves bearing unanticipated costs if the program advances.”
He noted that although the legislation authorizing the program “limits the state’s liability, future state policymakers are likely to feel an obligation to cover any shortfalls or excessive expenses that the program incurs.”
AARP, which supports the bill, set up a website in early May, SecureChoiceCa.aarp.org, which provides up-to-date information and news about the California bill. Other supporters of the bill include The Small Business Majority, National Council of La Raza, the Service Employees International Union, the California Association for Nonprofits, and the California Association for Micro Enterprise Opportunity.
ICI has also come out against Colorado’s Secure Savings Plan; the House finance committee in the state has postponed indefinitely a vote on the state’s plan.
ICI had complained to the Colorado House Finance Committee in a letter that while “proponents of state retirement programs for private-sector employees — like the Colorado plan — claim that such programs do not expose taxpayers to significant startup and ongoing administrative costs, these claims often are based on data that exaggerate the financial feasibility of the programs.”
Twenty states are “actively working” on state-run retirement programs for private-sector workers.