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  #11  
Old 08-24-2016, 03:21 PM
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Mary Pat Campbell
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CALIFORNIA

http://www.wsj.com/articles/californ...you-1471993266

Quote:
California Has an IRA for You
Sacramento creates a new public option for private workers that politicians control.

Liberals are demanding more financial regulation, supposedly to protect consumers and taxpayers. So why are they cheering a too-big-to-fail state retirement plan for workers in California that would be largely unregulated?

In 2012 Democrats in Sacramento authorized state-managed individual retirement accounts for some six million employees working in the state without access to 401(k)s or pensions. The legislation required employers with five or more workers that don’t offer retirement plans to automatically enroll employees in a new public option. Employees can opt out.

A board comprised of Democrats and their nominees—namely, union reps and attorneys—has been charged with fleshing out the program’s details, which must be approved by the legislature and Governor. The Senate green-lighted the plan in May, and the Assembly intends to vote this week.

The legislation gives the board carte blanche to design and manage the state IRAs. One of the few rules is that the employee contribution must start between 2% and 5% of wages and can only escalate by one percentage point annually up to 10%. Administrative costs after six years are capped at 1% of program assets, which is greater than the operating expenses charged by 90% of IRA equity mutual funds.

The board could invest workers’ money however it chooses, so politicians would be able to direct billions toward their favorite causes. However, the board is supposed to stick to U.S. Treasurys or “similar investments” during the first three years to prevent the plans from going belly up if markets crash. So early investors may get little return on their savings.

Taxpayers would have to cover the program’s start-up costs (putatively in the form of a general fund loan), which are pegged at $134 million. And while the legislation stipulates that the state “shall not have any liability for the payment of the retirement savings benefit,” nothing prohibits the legislature from bailing out the plans in the future. Have you ever heard of a public fund that didn’t have an implicit taxpayer guarantee?

A legislative analysis notes that “the fiscal impact of this bill is subject to considerable uncertainty.” No kidding. If more workers opt out or contribute less than the board projects, administrative costs could exceed the 1% limit. Taxpayers might have to pick up the difference.

The legislation also contemplates a “reserve fund” to smooth out market returns. This would involve the board siphoning off investment returns when markets are roaring to offset losses during other years. What could go wrong?

A K&L Gates legal analysis commissioned by the board warns that “early participants and short term participants may not benefit from the reserve and could even experience reduced returns in good market years.” On the other hand, “if the reserve fund becomes sizable, the Board and the State Government may face pressure to ‘break open’ the reserve for immediate allocation or, conceivably, some State purpose.”

English translation: A retirement program created by politicians will be subject to political interference.
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  #12  
Old 08-24-2016, 04:09 PM
DiscreteAndDiscreet DiscreteAndDiscreet is offline
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The funny thing is that investment advice for lower income individuals is so terrible yet the Wall Street Journal keeps running opinion pieces attacking extremely modest programs aimed at establishing retirement savings for lower income workers.

For years now I've been looking for any explanation of the implications of Roth vs Traditional IRA rules for households in the bottom income quartile. I have yet to see anything that explains that due to thresholds for taxability of social security income, lower income individuals are unlikely to benefit from Roth rules. Investment advisors do not put any effort in serving lower income groups, either directly or by soliciting smaller employers.
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  #13  
Old 08-24-2016, 05:03 PM
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Sounds like you should write a letter to the WSJ editor. I used to do that all the time.
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  #14  
Old 08-26-2016, 03:06 PM
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http://www.wsj.com/articles/u-s-rule...ers-1472149529

Quote:
U.S. Nudges States to Help Private-Sector Workers Save for Retirement
Obama administration wants Americans to build nest eggs to supplement social security

WASHINGTON—The Obama administration on Thursday finalized a new regulation to encourage states to set up retirement savings plans with automatic enrollment features for private-sector employees, part of its push to promote Americans to build their own nest eggs to supplement social security.

The rule, announced by Labor Secretary Thomas Perez and the White House, gives states a road map for establishing the retirement plans.

Several states already have passed legislation to create their own vehicles to enroll workers who don’t have access to pension or retirement savings plans in the workplace. The California State Assembly on Thursday cleared a plan that could potentially enroll some 6.8 million people. Maryland and Connecticut took action in recent months.

Opponents have said such plans crowd out competition from the private sector. Congress has blocked the Obama administration’s attempts to create similar plans at the federal level.

The Labor Department also unveiled a proposal on Thursday to enable large cities—defined as those with populations larger than Wyoming, the least populous state with 586,000 people in 2015—to create similar plans.

.....

The Treasury Department last year launched a basic retirement savings program called “myRA” for middle- and lower-income workers. The Labor Department, meanwhile, has rolled out a rule to impose stricter standards on financial advisers working on retirement plans, a step aimed at lowering fees and improving returns for savers and which is opposed fiercely by the financial industry.

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  #15  
Old 08-26-2016, 05:06 PM
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CALIFORNIA

https://www.google.com/url?sa=t&rct=...Ws-BL0jNArnqmQ

Quote:
California Aims Retirement Plan at Those Whose Jobs Offer None

California is preparing to create a mandatory state-run retirement plan for an estimated six million workers at companies that do not now offer any retirement benefits.

The move could make California the first state to require companies to take part in such a system. Colorado was considering the idea but decided against it in May, and New Jersey and Washington have opted instead for programs with very limited state involvement. But Connecticut, Oregon, Maryland and Illinois are moving forward with their own state-run retirement programs and are looking to California as an example.
Currently, California’s plan would require all companies in that state with five or more employees to take part in what is being called the Secure Choice Retirement Savings Program. The biggest companies will start first, and the smallest companies will have three years to get ready.

Money is not expected to start flowing into the first Secure Choice accounts until sometime in 2017.

The companies will not be required to contribute their own money to the program, only to enroll their workers. Nor does the measure make state taxpayers directly liable. But the financial services industry is questioning whether the program will be financially viable—and what will happen if it is not.

The California State Assembly approved the measure on Thursday; next, it must be reconciled with the State Senate’s version, passed in May. Gov. Jerry Brown, a Democrat, will then have 30 days to sign the measure into law. The bill has the support of unions and the AARP, among others.

Important features of the state program still need to be worked out, such as who will manage the money and what investment options will be available to workers.
On Thursday, the United States Department of Labor issued a final safe-harbor rule, making it possible for California to run its program without conforming with the federal employee benefits law, known as Erisa, that now covers all nongovernment workers in California and the other 49 states. The Secure Choice program may still be subject to regulation by the Securities and Exchange Commission, however, raising thorny constitutional issues.

The Investment Company Institute, which represents the mutual fund industry, said the new safe-harbor rule seemed to pose a double standard, because the fiduciary standards for company retirement plans were recently tightened, and state-led plans like Secure Choice were exempt.
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  #16  
Old 08-26-2016, 05:48 PM
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DOL Final Rule:

https://www.dol.gov/sites/default/fi...final-rule.pdf

Quote:
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2510
RIN 1210-AB71
Savings Arrangements Established by States for Non-Governmental Employees
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Final rule.
SUMMARY: This document describes circumstances in which state payroll deduction
savings programs with automatic enrollment would not give rise to the establishment of
employee pension benefit plans under the Employee Retirement Income Security Act of
1974, as amended (ERISA). This document provides guidance for states in designing
such programs so as to reduce the risk of ERISA preemption of the relevant state laws.
This document also provides guidance to private-sector employers that may be covered
by such state laws. This rule affects individuals and employers subject to such state laws.
proposed rule:
https://www.dol.gov/sites/default/fi...posed-rule.pdf

Quote:
DEPARTMENT OF LABOR
Employee Benefits Security Administration
29 CFR Part 2510
RIN 1210-AB76
Savings Arrangements Established by State Political Subdivisions for Non-Governmental
Employees
AGENCY: Employee Benefits Security Administration, Department of Labor.
ACTION: Proposed rule.
SUMMARY: In this document, the Department proposes to amend a regulation that
describes how states may design and operate payroll deduction savings programs, using
automatic enrollment, for private-sector employees without causing the states or privatesector
employers to establish employee pension benefit plans under the Employee
Retirement Income Security Act of 1974 (ERISA). The proposed amendments would
expand the current regulation beyond states to cover programs of qualified state political
subdivisions that otherwise comply with the current regulation. This rule would affect
individuals and employers subject to such programs.
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  #17  
Old 09-06-2016, 02:31 PM
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https://www.brookings.edu/blog/up-fr...ntent=33790360

Quote:
UP FRONT
Regulations enable millions to build retirement security through state plans

Final Department of Labor (DOL) regulations have opened the way for the largest expansion of retirement plan coverage in several decades. The regulations provide much needed guidance to states that want to establish state-sponsored Automatic IRA plans for small business employees. Earlier, DOL provided guidance for state-sponsored Multiple Employee Plans (MEPs) and marketplaces.

Currently, about 55 million Americans work for companies that don’t offer them the ability to save for retirement through payroll deduction. Most of these workers are employed by small businesses, and a large proportion is made up of women, minorities and those with lower incomes. The percentage of workers offered a retirement savings plan or pension has not changed for several decades. Faced with growing costs if people retire with little more than Social Security, many states are considering state-sponsored retirement savings plans for small business employees. Already, eight states have passed legislation to establish some form of state-sponsored retirement plan.

.....
CITY PLANS POSSIBLE

DOL also issued proposed regulations that could allow some cities to start small business retirement savings plans. The proposal came because New York City, Philadelphia and Seattle are exploring such a move. The proposal limits this option to cities that have the ability under state law to require businesses to offer a plan and have a population greater than the smallest population state. The city must be located in a state that has not already set up a state-sponsored plan. In addition, DOL is considering requiring cities to have demonstrated the ability to operate a payroll deduction savings program.

DOL already had issued an interpretive bulletin allowing states to sponsor ERISA-regulated MEPs provided employers are not required to offer the plan. A MEP is essentially a group 401(k) plan with simplified structure and regulatory requirements on employers. The bulletin also approved state marketplaces where employers can select a pre-screened retirement plan that meets certain levels of fees or other requirements.

The final regulations make it clear that states have the legal authority to offer small business retirement savings plans. As more states do so, millions of more Americans will be able to build retirement security.
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  #18  
Old 09-06-2016, 02:36 PM
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http://www.truthinaccounting.org/new...private-sector

Quote:
News
New state- and city-run retirement savings plans – for the ‘private’ sector?
September 6, 2016

The US Department of Labor recently passed new rules allowing states to establish new retirement savings plans for people working in private-sector jobs without retirement plans. These new rules reportedly also allow cities to do similar things.
In light of the record many state and local governments have in managing their own plans, these developments may not be cause for celebration.
So far, eight states have reportedly passed laws establishing plans like these. They are California, Connecticut, Illinois, Massachusetts, Maryland, New Jersey, Oregon, and Washington.
While Oregon and Washington are in relatively good financial shape, the other six (large) states have dug some of the biggest financial holes in the nation, largely through government retirement plans.

The average Taxpayer Burden that Truth in Accounting calculates for those eight states comes to nearly $27,000, over six times as high as the average for the rest of the 50 states.
Is this just a coincidence?
Just thinking out loud, are these new plans one way to get money in the door, at least in the short run?
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Old 10-03-2016, 04:46 PM
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This guy, Chuck DeVore, seems to think that these plans are intended to bail out state pensions.

among other things.

http://www.forbes.com/sites/chuckdev.../#20b055145295

Quote:
How You Will Bail Out State Pension Systems

......
Not to worry though, the Obama administration’s Labor Department has issued a rule pressuring states and large local governments into offering government-run retirement plans for private sector workers. Curiously, this move may bailout troubled pension systems while massively increasing their political clout.


California just passed a law to force 7.5 million private sector workers to pay into the state retirement system. In this, the Golden State joins Illinois, Connecticut, Massachusetts, Oregon and Maryland. Of note is that these six states rank from having the 2nd to the 13th-worst unfunded pension liabilities in the nation, with Illinois’ pension debt estimated at $77,822 per household according to the Stanford Institute for Economic Policy Research Pension Tracker website. Minnesota is actively studying the issue; they have the 18th-highest per unfunded pension liability. New Jersey’s legislature passed a bill to expand its state retirement system to non-government workers, but Gov. Chris Christie intelligently vetoed the plan.

Why are the weakest government pension systems seeking to force private sector workers to pay into their accounts? There are four reasons: the infusion of new cash can help the balance sheets; millions of additional voters will be made more dependent on government programs; those same voters will be invested in ensuring that state-run pension systems are adequately funded; and the political appointees and politicians who oversee those retirement systems will have billions more in investment leverage to pressure corporations to bend to their progressive demands.
Hmmm, didn't know these assets were supposed to be commingled. Most of these things are supposedly DC plans.

Quote:
This latter point is little understood. The California Public Employees’ Retirement System, CalPERS, manages $300 billion for its 1.8 million members. It’s the nation’s largest government pension system. CalPERS’ considerable holdings allows it to play an outsized influence on corporate decision making. For instance, a few weeks ago, CalPERS and its teacher retirement counterpart in California, CALSTRS, announced that they would vote against the re-election of UK-based Sports Direct chairman Keith Hellawell as well as its founder, Mike Ashley, at the behest of labor unions who were seeking concessions from the company. $300 billion speaks loudly. Billions more from millions of additional workers pushed into the system would amplify that voice.
Calpers is already the largest pension fund in the U.S. I highly doubt they need more money to increase their clout.

It's a bit overwrought. I think these state-run plans are a bad idea, mainly because the money will be a political football. I have little trust that these DC plans will be well run at all.
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Old 10-03-2016, 07:54 PM
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Quote:
Originally Posted by campbell View Post
This guy, Chuck DeVore, seems to think that these plans are intended to bail out state pensions.

among other things.

http://www.forbes.com/sites/chuckdev.../#20b055145295



Hmmm, didn't know these assets were supposed to be commingled. Most of these things are supposedly DC plans.



Calpers is already the largest pension fund in the U.S. I highly doubt they need more money to increase their clout.

It's a bit overwrought. I think these state-run plans are a bad idea, mainly because the money will be a political football. I have little trust that these DC plans will be well run at all.
Last I heard the plan was to make them DC plans with strategies for DB-like features being evaluated for implementation. Authority over the plans is vested in a board with fiduciary responsibility to the plan members.

There may have been talk at some point of using investment advisors serving the state PERS as the investment advisors for these types of plans to take advantage of negotiating power, but that would still be subject to fiduciary responsibility to both plans considered independently.

My understanding is that these plans were developed in response to the argument that public sector employees had better retirement security than private sector employees and that lower income employees of small employers were in particular identified as having poor access to automatic enrollment plans.

All of this is generally in the vein of the "nudge" theory of establishing default participation in something that is at least better than the average plan that people make on their own. The default contribution rate has been set very low and these are still pilot plants for that theory.
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