Employers Oppose Bill Mandating Private Sector Pensions

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In the August 10 Alert Newsletter, the California Chamber of Commerce highlighted problems August 8 with the private sector pension mandate in SB 1234 (de León; D-Los Angeles/Steinberg; D-Sacramento). SB 1234 mandates private non-unionized employers that do not offer a retirement plan to enroll their employees in a government-created program. The bill subjects employers to significant cost, fiduciary responsibilities and liability with no commensurate benefit to employees by requiring employers without a retirement plan to enroll their workers in the new "California Secure Choice Retirement Savings Program" or pay a penalty of $250 per employee.

In testimony to the Assembly Appropriations Committee, CalChamber Vice President of Government Relations Marc Burgat noted that SB 1234 sets up an appointed commission and then turns over authority to that commission for establishing the new "retirement savings" program. He recommended that unanswered questions about the program and its ramifications be resolved before legislators move forward on the plan.

In effect, the legislation could force low-wage workers to choose between being forced to set aside money for retirement and current pressing obligations, including paying the rent and high-interest credit debt.

The new risks mandated by SB 1234 (which applies to employers with as few as five workers) could be particularly harmful to small businesses that can't afford the added liability, including the duty to properly educate employees about the retirement options available so the employees can make an informed decision.

It appears the author is attempting to eliminate both state and business liability for the new program while exempting employee participants in the new savings plan from protections in the federal Employee Retirement Income Security Act (ERISA). ERISA was enacted in 1974 to protect participants in non-government-sponsored (private) retirement plans. It sets minimum standards for private plans, including significant fiduciary responsibilities for employer participants that include filing annual reports and actuarial valuations.

The author and supporters of the bill contend the entire cost of the California Secure Choice Retirement Savings Program would be supported by the plan's contributions and investment income.

Other analysts, however, say the supporters have significantly underestimated the costs and the potential shortfalls that will result if investment returns fall short of projections.

Action Needed

Contact legislators and ask them to oppose SB 1234. The mandate is at odds with efforts to make the state more business friendly.