Plan to open up CalPERS reflects worry about inadequate saving for retirement

Investing for retirement is the financial equivalent of eating your vegetables: It's good for you, but sometimes downright distasteful.

Now a proposal making its way through the California Legislature has people talking about whether the state can make putting aside retirement money more palatable.

The plan would let private businesses and workers funnel direct payroll deposits into a retirement investment account. The California Public Employees' Retirement System would administer the pooled money.

No one knows how many of California's 6 million workers without retirement plans would sign up. Many struggle in jobs that leave them with little money at the end of the month. The arcane language of finance can paralyze the uninitiated. And let's face it: We love buying stuff, even when we can't afford it.

"We want everything now," said Lynn Wigginton, a Sacramento certified financial planner. "All the bells and whistles, the newest car. It's a real obstacle to saving for retirement."

The savings plan could change that by making individual retirement investing as close to set-it-and-forget-it as possible.

Assembly Bill 2940 would let private-sector workers without an employer-sponsored retirement plan sign up for IRAs watched over by CalPERS. The same apparatus used to take taxes out of paychecks would channel direct deposits into the accounts, which could be carried from job to job.

The plan's supporters, including Gov. Arnold Schwarzenegger and author Assemblyman Kevin de León, D-Los Angeles, believe CalPERS is up to the task. It's already the nation's largest public pension fund, managing $250 billion in assets for 1.5 million state and local government workers.

CalPERS hasn't yet commented on the idea. The fund's staff is analyzing the proposal and should make a recommendation to the CalPERS board at its mid-May meeting.

An aging nation

All of this matters because we're getting older as a nation. In 2007, there were roughly five people between 20 and 64 for every person 65 and older. By 2030, when the youngest baby boomers turn 65, the ratio will fall to 3-to-1.

The retirement surge means more people will need things like Social Security and Medicare but relatively fewer workers will be kicking in payroll taxes to cover the bills.

"Who knows what things will look like for retirees in 20 or 30 years?" said Garry Burris, a policy analyst with the Seattle-based Economic Opportunity Institute.

That uncertainty is the driving force behind the proposal. Only 18 percent of workers are very confident about having enough money to live comfortably in retirement, according to a recent survey by the Employee Benefits Research Institute in Washington, D.C. That matches the survey's all-time low in 1993. But only 30 percent put money in an employer-sponsored account like a 401(k) and only 22 percent have a separate retirement savings account.

The California plan, with direct deposit and the lower costs that likely will go with using Cal-PERS resources, takes a stab at making it easier to invest. But will workers take a bite?

Probably not, said Mark Iwry, a senior fellow with the Brookings Institution and an expert on retirement savings. He helped craft the California plan and similar proposals in Connecticut and Washington state.

"If we got half, even a third, even a million of the 6 million Californians (without a retirement plan) to do this, it would be a breakthrough," Iwry said. "But will everyone sign up? No."

'A change in the wind'

What we're seeing, experts say, is a social shift as significant as when the American Express Co. created, in 1875, the nation's first private pension plan.

For decades, many Americans built their retirement on the dependable twin pillars of company-run pensions, called defined benefit plans, and Social Security.

Neither program asked that you do anything more than work. And when you decided to retire you had a pretty good idea what your bank account would look like each month.

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