Financial Literacy

Under the guise of “helping workers without access to 401(k) plans,” the state of California is creating a new retirement plan. This plan is named the California Secure Choice plan, and in my opinion, this retirement plan will harm both workers and taxpayers. Let’s count a few of the predictable problems with this plan:

1. It is run by a board of politicians and they decided to exempt themselves from any financial regulations.
2. Administrative costs are expected to be among the highest-fee retirement accounts.
3. Taxpayers in the state of California are on the hook for the startup costs and any management fees that exceed their 1% cap on fees.
4. The Board of Directors can direct investments into anything they want; opening the door to corruption and kickbacks.
5. If the arbitrary “reserve fund” becomes sizable from profits, the state of California is permitted to steal that money for state spending.
6. The Board can choose whether it wants to make any financial disclosures; this non-transparency can hide conflicts of interest and corruption.
7. The Board doesn’t want workers to withdraw their money toward self-directed accounts, so the account will “impose cost-saving restrictions;” meaning stiff financial penalties on withdrawals.

To sum up some of the bad ideas put into this plan:

Workers’ money will be put into an unregulated prison, managed by pirates with little transparency, charged high annual fees, plus a large exit fee to rescue their money and get it out. Large investment losses will likely be refunded by California taxpayers and any large gains will be arbitrarily stolen from workers accounts and spent by state politicians. Based on California’s chronic mismanagement of their pensions and budgets, I predict this new plan will dramatically under-perform alternative retirement accounts.

Funding retirement savings is extremely important, but this plan is definitely not one of the solutions. Any worker can open a Roth-IRA, a regular IRA, or plenty of other retirement savings vehicles. California, along with other states, want to auto-enroll workers into the poorest location for retirement savings, such as this California Secure Choice or other 401(k)-similar plans. It is my best advice that no one permits a single penny of their money into any state-run plan.