California Assembly panel passes state-run IRA proposal

A proposal to open California's retirement system to private sector workers prompted questions Wednesday about government competing with investment firms and the pension system's ability to handle the unique program.

"We just don't know if it's going to work yet," Assemblyman Kevin Jeffries, R-Lake Elsinore, said of the proposal to have the California Public Employees' Retirement System offer IRA accounts to workers whose employers don't offer retirement savings plans.

But Sacramento carpenter Lou Delgado said he would be interested in a CalPERS retirement account.

"I'm 40 years old and don't have anything in a real retirement plan, just some savings of my own," Delgado said. "I've worked for a lot of (companies) and never had something like that, so, yeah, I'd be interested in anything that could put away a few dollars a week at this stage of my life."

The proposal, Assembly Bill 2940 by Assemblyman Kevin De León, D-Los Angeles, passed its first test Wednesday when a committee that deals with retirement issues approved it on a 4-1 vote, with Jeffries abstaining and another Republican, Joel Anderson of Alpine, voting against it.

Supporters said the idea has been percolating for years, both on the federal level and in statehouses. It's being pushed by think tanks as a way to get low- and middle-income Americans to start saving for retirement to supplement Social Security payouts.

"We're trying to create a new model to get people on board," said Mark Paul, senior scholar at the New America Foundation, a nonprofit, nonpartisan institute that is sponsoring AB 2940.

As it is, about 6 million Californians work for businesses that do not offer retirement savings plans such as 401(k)s. Gov. Arnold Schwarzenegger said Tuesday that he likes the idea.

The bill calls on the California Public Employees' Retirement System to offer IRA accounts to workers whose employers don't. The accounts would benefit from CalPERS' investment acumen, but would be separate from the traditional pensions offered to public employees.

The retirement system has not yet taken a position on the bill, and its board is not expected to consider it until its May meeting, at the earliest.

Supporters say the California Employee Savings Plan would allow workers to use payroll deductions to sock away money for retirement, at no cost to taxpayers.

Jeffries questioned whether government would muscle out private investment firms that offer retirement savings plans such as IRAs and 401(k)s.

"Is there going to be a competitive disadvantage created by bringing the state into this arena?" he said.

The retirement system, called on to handle a large number of relatively small accounts, might wrack up high management costs, he said, which in turn would erode retirement savings.

"Are we inadvertently going to give them a program that has a reduced rate of return?" he asked.

Anderson voted against the bill because of potential taxpayer liability, and the availability of IRAs and other savings accounts on the private market.

He also questioned why the program should be available only to those workers whose employers don't offer retirement savings plans, said Mike Spence, Anderson's chief of staff.

Supporters of the bill say the private market has shown little interest in catering to small businesses and their workers.

"This is a case of market failure," said Paul of the New America Foundation.

The bill envisions the Employment Development Department using its existing automated system for collecting payroll taxes to allow workers to have contributions deducted from their paychecks.

CalPERS is renowned for its investing prowess, supporters say, and could use a contractor to service the accounts, such as mailing statements and maintaining a Web site. If the retirement system tapped into a large market, the big pool of investors would create economies of scale.

"They have extremely low costs and they're very sophisticated," Paul said.

Dean Baker, co-director of a Washington, D.C., think tank called the Center for Economic Policy Research, said the idea has been kicking around for a decade.

But on the federal level, he said, "it got caught up in Social Security politics."

The state of Washington, however, 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.

Baker said there could be some startup costs, but that they could be recovered over five to six years.

For all its attractions, the plan would not be for everyone.

Sacramentan Jean West, 33, said she has worked at various clerk and secretarial jobs, none of which involved a retirement plan. But she said she wanted "nothing to do with one, no matter who's running it.

"I'm stubborn, but I don't want to risk my money with someone else. I'd rather handle things myself, because I really am awful careful with my money."

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