Legislation designed to pave the way for a private retirement plan affecting millions of California private-sector workers was signed into law Friday by Gov. Jerry Brown.
The goal is to create a savings program in which workers who have no access to a pension can count on a guaranteed rate of return for contributing about 3 percent of their salary.
Brown's signing of Senate Bill 1234 signals support for the program, but he signed separate legislation, Senate Bill 923, that requires a feasibility study and a final vote by the Legislature before launching it.
Sen. Kevin de León, who teamed with Senate President Pro Tem Darrell Steinberg to push SB 1234, said Brown's signing could lead to creation of a "national model for retirement savings."
"With his leadership, we are setting the path for middle-class, hard-working Americans to prepare for retirement so they won't be forced into poverty," de León said in a written statement.
The voluntary retirement plan targets an estimated 6.3 million private-sector workers in California who have no pension plan.
Social Security is the only income that many workers currently have in old age and its average of $1,181 per month is meager, de León contends.
Unlike a public pension, de León's program would guarantee participants a minimal rate of return for contributions made via payroll deduction. The Los Angeles Democrat contends that neither the state nor private businesses would incur risk. Returns would be assured by private insurance underwriters.
Money would be pooled in a state-administered fund that would be professionally and conservatively managed and invested.
The program was hotly debated for months before passage of SB 1234 and SB 923 on the final day of this year's legislative session.
Most Democrats supported the two bills, while most Republicans voted no.
Some opponents fear, despite de León's assurance, that the state could be forced to assume liability if returns fall below projections.
Other critics say there are plenty of retirement investment programs on the market now and that the state has no business tackling the issue at a time when its pension system for public workers is underfunded by billions of dollars.
De León's program could not be implemented unless a market analysis deems it feasible and not a pension program under federal law.
The feasibility study would require about $1 million in non-state funds, perhaps from the federal government, nonprofit groups or public policy think tanks.
De León hopes to complete the study and be ready to launch the program by the end of 2013.
Before committing himself to the concept, Brown sought and received the requirements placed in SB 923 that lawmakers take a final vote before implementation and that a board overseeing the program be increased from seven to nine members, five of whom would be gubernatorial appointees or officials of his administration.