MOORLACH UPDATE — SB 1234 — August 26, 2016

I warned you that another big government scheme, SB 1234, was coming for the pocketbook of an employer near you (see MOORLACH UPDATE — April Fools’ Day — April 1, 2016 april 1, 2016 john moorlach).

As the 2015-2016 Legislative Session draws to a close next Wednesday, SB 1234 will be one of the final bills that we vote on.

Government has its core business. It should stick to its knitting and not stray from its primary functions of public safety, social services and infrastructure. There are reasons why a large bureaucracy should not be doing ancillary things. The private sector is much better suited to do them.

Elected officials want to solve problems. According to them, if you think government employees are receiving large pension benefits, then your perspective is inaccurate. The real problem is that your employer is remiss in not having you in a pension plan. If you think that people are neglecting their futures and not saving for it, then government needs to address this matter. Never mind that there are a myriad of reasons why people have postponed preparing for their retirement. So the state is coming to the rescue.

Forget about utilizing a bank, a stockbroker, or a financial planner, Sacramento may just become your retirement money manager. I have a strong hunch – based on previous experience – that when the market inevitably falls out, that the legislature will step in and “save” these private retirements, at the cost to every taxpayer in the state. If you think that government pension systems are doing well, ask CalPERS and CalSTRS why they are hemorrhaging at $30 billion per year. And ask your elected officials if it’s fair for you to be paying more taxes to cover these losses rather than fixing your potholes.

When the County of Orange filed for Chapter 9 bankruptcy protection on December 6, 1994, the depositors were unable to withdraw their funds. Many worried that the County would use these funds to bail itself out. Did you see how much borrowing the State of California did from its Local Agency Investment Agency (LAIF) during the recession? It even made the rating agencies nervous. It should make you nervous, too.

Obviously, as a trained Certified Public Accountant and Certified Financial Planner, I’m not in favor of this proposed strategy.

The Sacramento Bee hasprovided me with the opportunity, in the piece below, to address yet another straw that will eventually break the proverbial camel’s back.

State should focus on roads instead of creating retirement plan

BY JOHN MOORLACH

Special to The Bee

Senate President Pro Tem Kevin de León’s Senate Bill 1234 – or the Secure Choice Act – is a noble effort to impose a defined contribution plan into your budget, but it is neither “secure” nor a “choice.” Hold onto your wallet. (“Here’s how to do more than lament the plight of the poor”; Editorials, Aug. 18)

You know that you should be setting funds aside for your retirement. Some employers may do this for you as an employee benefit, usually in a 401(k) plan, through employee withholdings. The state is proposing to provide a similar plan through withholdings from your paycheck. But are you able to take a reduction in your net paycheck?

SB 1234 will require employers to withhold the plan contributions from your paychecks and send the funds to Sacramento to be invested on your behalf with the intent that the returns will be modest and somewhat guaranteed.

As a result, your take-home pay will be reduced because a compassionate and paternalistic bureaucracy is stepping in to “help you.” Never mind that you have other expenses to address.

California is proposing to withdraw this amount directly from your paycheck. The Secure Choice Act, described by The Sacramento Bee’s editorial board as “a potentially far-reaching social program, with modest costs and limited risks,” should worry taxpayers. In money management, there is rarely a scheme that has minimal costs and limited risk.

We are told your funds will be invested in U.S. Treasury bills. This investment has historically been safe, but it is lackluster. Don’t expect to get back a whole lot more than you put in.

Expect this “secure” investment to morph, as pressures build to provide better yields, and expect it to become more expensive as economic cycles take their tolls. And here’s the kicker: The taxpayers, you, will be responsible for the risks and resulting investment losses.

In the meantime, the state will have established yet another bureaucracy, with multiple employees, who will be earning above market salaries and eventually receiving generous defined benefit pension plan benefits, a pension plan strategy that is nowhere close to what you’ve sacrificed to build over the years.

With poorly maintained roads, severely underfunded pensions and a high-speed rail boondoggle, the Legislature has plenty of fixing to do before it pursues another “do good and feel good” social program.

Sen. John Moorlach, R-Orange County, represents the 37th District. Senator.Moorlach.

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