The Investment Company Institute has written to the governor of California urging him to stop the California Secure Choice Retirement Savings Program before it is implemented, citing what it says are the costs and risks of the legislation.
In its 68-page letter, the Washington, D.C.-based institute warned Gov. Jerry Brown in detail of what it said were “fiscal risks, legal risks, and, for California’s workers, financial and investor protection risks” that the state would be taking on should the program be implemented.
Secure Choice, in the works since 2012, is structured as an auto-enrollment retirement savings plan for workers who are not currently covered by a retirement plan by their employers.
It would require an opt-out, rather than an opt-in, and would deduct between 2 and 5 percent of their pay for retirement savings —something else they can opt out of. To keep the program’s costs low, the money would be invested for the first few years not in mutual funds, but in a pool of Treasury securities — something that ICI decries.
In its letter, ICI said, “About half of defined contribution plan and individual retirement account assets are invested in mutual funds, which makes the mutual fund industry especially attuned to the needs of retirement savers.”
That may be the case, but the letter’s tone runs contrary to other voices raised in support California’s Secure Choice plan — including AARP and even The New York Times, which pointed out that the plan has been so long in the making because lawmakers sought to make sure it was legally compatible with federal pension law.
The plan, expected to be passed into law next week, would give a retirement savings option to an estimated 6.8 million Californians working for employers who don’t provide them with a retirement plan.
Employers with five or more employees would withhold the deductions from employee pay; the money would be overseen by a board appointed by the governor and the state legislature, and managed by a third-party investment firm.
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