The bill, authored by Assemblyman Kevin de Leon, D-Los Angeles, is aimed at the 6 million employees in California who aren’t offered a pension or retirement savings plan at work, according to the San Jose Mercury News. The plan has been backed by Republican Governor Arnold Schwarzenegger.
The proposal, Assembly Bill 2940, passed its first test Wednesday when a committee that deals with retirement issues approved it on a 4-1 vote. The bill would make California the first state in the nation to open its public retirement plan to workers in the private sector, supporters said, although several other states are considering the idea. The program would allow employees at businesses without pension or defined contribution retirement plans to set up IRA-type savings accounts through the California Public Employees’ Retirement System (CalPERS).
Participating workers would have pretax earnings deducted from their paychecks and deposited into the savings accounts, and employers could choose to match those contributions. Workers would be able to carry the accounts from job to job.
Proponents said the plan would be administered with money raised from fees on participants, so no new taxpayer money would be needed – and the fees would be lower than those workers might be charged by a private investment firm, de Leon said, according to the news report. However, Assemblyman Kevin Jeffries, R-Lake Elsinore, who voted against the proposal, questioned whether government would muscle out private investment firms that offer retirement savings plans such as IRAs and 401(k)s, according to the Sacramento Bee. “Is there going to be a competitive disadvantage created by bringing the state into this arena?” he said.
It is an argument that opponents of similar measures in Connecticut have recently raised (see CT Lawmakers Propose Retirement Plan Option for Small Businesses). The state of Washington is moving ahead with a plan to offer retirement savings accounts through its public employee retirement system. Washington lawmakers are expected to consider the proposal in 2009.
Regarding the California proposal, Schwarzenegger said it “will help make businesses more competitive, without costing them anything, and will help employees save for their retirement, without costing taxpayers anything, either.”