MOORLACH UPDATE — Secure Choice in Jeopardy — April 2, 2017

Shouldn’t your government focus on its core business functions?

Should taxpayers tolerate mission creep?

Is administering a defined contribution pension plan by withholding funds from paychecks, for those earning taxable wages from small businesses that have not established a retirement plan, a function that the government should assume?

Isn’t it ironic that these defined contribution plan participants will be paying administration fees that will cover the costs of government employees that are compensated at market wages plus participation in a generous defined benefit plan?

When anyone can open a bank account and methodically contribute funds into it with each paycheck on their own, do they need the government to step in and assume this role?

Will obtaining monthly statements and contacting a customer service department be a smooth and easy process? Or will government employees, who are not competing for business, really care whether statements are issued in a timely basis or that phone calls are answered promptly?

Could it be that the personal savings rate and setting funds aside for retirement is declining because taxes and the cost of housing have been increasing? Are efforts to take care of our futures being crowded out by ever-increasing current governmental taxes and fees?

Will an employee who is in a tight fiscal condition ever opt in? Will an employee scream when his net paycheck is reduced when this program begins, should it begin? Or will that employee demand a pay raise to keep the net check the same?

As someone who served as the Chairman of a credit counseling nonprofit, who made a good living as a CPA and CFP, who managed an investment portfolio of some $7 billion, who has served for a dozen years on one of the nation’s largest public retirement systems, and who has written and spoken on the topic of personal financial planning for most of my career, I fully appreciate the need for providing a defined contribution plan. But, after twenty-two years in the public sector, I believe this is the last entity that should administer and manage anyone’s personal finances. (Also see and

Why? Because government is inherently inefficient and ineffective. There is no profit motive or competitors to force it to be anything other. Just think Caltrans and DMV. What will government do if this type of retirement plan turns out to be an expensive bust? It will subsidize it and it will bail it out. Who pays for this enabling behavior? You do!

If California insists on going into this noble, but inappropriate direction, then the taxpayers should have a chance to vote, up or down, that their tax dollars will not be spent on the potential poor mismanagement, misjudgment or misfortune of the investments for the Secure Choice participants. The private sector doesn’t back up investors, neither should the public sector.

With this in mind, I have submitted Senate Constitutional Amendment 1 to protect your tax dollars from underwriting any enabling legislation that would impact the State’s General Fund in the future.

CALmatters, published in the Record-Bee Lifestyle, introduces my efforts in the piece below. For more information, see MOORLACH UPDATE — Secure Choice Losses? — October 12, 2016 october 12, 2016 john moorlach, MOORLACH UPDATE — New State-Run Pension System — September 30, 2016 september 30, 2016 john moorlach, MOORLACH UPDATE — New Government Program? — September 16, 2016 september 16, 2016 john moorlach, MOORLACH UPDATE — SB 1234 — August 26, 2016 august 26, 2016 john moorlach, and MOORLACH UPDATE — April Fools’ Day — April 1, 2016 april 1, 2016 john moorlach. The piece is also in the San Bernardino Sun and San Jose Mercury News.

The ability for California to offer a defined contribution plan was made possible by a very unique Federal ruling on ERISA (explained in the piece below). Congress would be wise to reverse it. If it does not, then SCA 1 should be unanimously approved by the California Legislature to demonstrate its sincerity to provide a retirement plan that is not another government function that becomes a taxpayer drain, or worse, an outright boondoggle.


Retirement savings for all?

By Ben Christopher, CALmatters

SACRAMENTO >> California’s grand plan to extend retirement security to millions of workers, a cornerstone of the economic agenda put forward by state Democrats, is looking a little bit less secure.

That’s because Republicans in the U.S. Senate voted on Thursday to roll back a little-known Obama administration regulation, putting California’s “Secure Choice Retirement Savings Program” in jeopardy.

For years, state Democrats have been constructing the Secure Choice system, which would automatically enroll private-sector workers who aren’t offered workplace pensions or 401ks into a state-administered retirement savings plan. With its narrow 50 — 49 vote, the Senate follows the lead of the House, which passed the resolution last month, over the objections of Gov. Jerry Brown. The vote to nix the regulation—and thus imperil the California plan—reflected a near party-line split in Congress, with all the California Republicans voting against the regulation.

The White House has promised that President Trump will sign the bill, asserting that state-administered retirement programs put forward by California and seven other states “would lack important federal protections” and “give a competitive advantage to these public plans.”

The American Association of Retired Persons, which has been a strong advocate for these plans across the country, said it was “deeply disappointed with the Senate vote discouraging local flexibility to offer workplace savings for the 55 million Americans who currently lack access to retirement savings plans at work.”

The State Treasurer’s Office, tasked with overseeing the program, promises to keep advancing what it calls “the most ambitious push to expand retirement security since the passage of Social Security.”

“We’re not going to throw in the towel,” Treasurer spokesperson, Marc Lifsher, said before the Thursday vote. “We’re going to press ahead—even if the Senate goes south on us and the whole thing probably ends up with the courts.”

That outcome is looking increasingly likely. Secure Choice has long been in the cross hairs of the financial services industry, which considers it an unwelcome intrusion of government into their business. Reversing the Obama-era rule that provided regulatory cover for the program makes an ultimate legal challenge all the more likely.

As devised by Senate President Pro Tem Kevin de León, California’s Secure Choice program would automatically enroll the approximately 6.8 million eligible workers into individual retirement accounts. Participating employees would see 3 percent of each paycheck placed into a state-wide coffer, which would be overseen by a board chaired by the State Treasurer, but managed by a private investment manager. Eligible workers will have the option to bow out of the program. But by placing all eligible participants into the program by default from the get-go, the program’s designers hope to provide the California workforce with a helpful nudge toward financial prudence.

Secure Choice is meant to address what some economists and advocates call a national “retirement savings crisis.”

“Social Security is definitely not enough and it’s really not enough in California,” says Nari Rhee, the director of the Retirement Security Program at the UC Berkeley Center for Labor Research and Education.

The average annual Social Security retirement benefit in California is $13,758. This puts a retiree at 116 percent of the federal poverty line, unless that retiree has additional savings. In the coming years, many aren’t likely to.

According to an analysis of federal data by Rhee, a little over 61 percent of all working-aged Californians in the private sector do not have access to workplace retirement plans. Meanwhile one-in-three working adults—and over half of those making less than $40,000 a year—report having “no retirement savings or pension whatsoever.”

“What is going to happen to state and local budgets and services if all of these workers go into retirement without these resources to sustain themselves?” says Rhee. “You can help people save for retirement or you’re going to get stuck with a bill down the line.”

But the prospect of getting stuck with a bill is exactly what has some Republicans so worried. Last December, GOP state Sen. John Moorlach of Costa Mesa introduced a state constitutional amendment that would prevent Sacramento from stepping in if the Secure Choice plan runs into financial trouble.

“You can see legislators running in to save it to save face,” he says. “I think it’s something that Kevin de León should support if he’s sincere.”

The loss of legal cover from the federal government will only add to the state’s legal and financial concerns.

Last August, the Obama Labor Department ruled that state-administered retirement plans like Secure Choice would not be subject to a strict set of pension regulations known as the Employee Retirement Income Security Act (ERISA).

ERISA (rhymes with “Marissa”) is meant to prevent employers from “using the pension plan as a cookie jar,” explains Bruce Wolk, a professor emeritus at the UC Davis School of Law and an expert on pension law. Thus, the law saddles employers with strict reporting requirements and places them on the legal and financial hook if anything should go wrong with the plan.

To get around ERISA—and the objections of business groups like the Chamber of Commerce—Sen. de León structured Secure Choice to ensure that federal regulators would not consider it an “employer pension benefit plan.” Namely, employers would not be asked to contribute to, accept money from, or endorse Secure Choice plans in anyway. Likewise, employee participation would be “completely voluntary.”


Under the Secure Choice program, eligible workers are automatically enrolled into the system, but given the option to opt out. It’s an idea that harnesses the widely-observed human tendency to go with the flow: Researchers have found that simply switching from a savings program that requires workers to proactively opt in to one where participation is set as the default can double the share of workers socking money away. Still, auto-enrollment is an ERISA red flag.

“What does ‘completely voluntary’ mean? Nobody knows,” says Wolk. “That was one of the reasons that everyone wanted the Department of Labor to issue a ruling.”

But then the 2016 election happened.

Since taking control of both chambers of Congress, Republicans have been making ample use of the Congressional Review Act, which allows lawmakers to roll back any executive rule with a simple majority as long as it was enacted within the last 60 Congressional business days. This is how Obama’s ERISA-waiver was undone in the House and the Senate.

But even if the White House were to defy all expectation and not sign the bill, the fate of Secure Choice is likely to be decided in the courts, says Wolk,

“Even if the Department of Labor blesses this, it’s still possible that someone could challenge it,” he says. “I think it’s likely that someone will.”

Ben Christopher is a contributor to, a nonprofit, nonpartisan media venture explaining California policies and politics


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