Sept. 1 (Bloomberg) -- California lawmakers approved a bill that would permit as many as 6.3 million private workers without a pension plan to set aside retirement money for management by the state.
If signed by Governor Jerry Brown, the first state-run pension program for nongovernment employees would add as much as $6.6 billion to funds managed by the California Public Employees’ Retirement System, the biggest U.S. pension. Calpers, as the fund is known, ended fiscal 2012 with $233 billion in assets.
“This is government doing what government is supposed to do, and that’s helping people,” said Assemblyman Warren Furutani, a Long Beach Democrat.
The Assembly voted 44-24 yesterday for the plan aimed at businesses with five or more employees that don’t offer pensions or 401(k) savings programs. Companies would be required to contribute 3 percent of a worker’s salary to the retirement account. Workers would be enrolled unless they choose to opt out.
The proposal by state Senate President Pro Tem Darrell Steinberg of Sacramento and Senator Kevin de Leon of Los Angeles, both Democrats, passed the upper chamber 23-13 in May.
Brown, a Democrat, has until Sept. 30 to sign or veto the legislation, or it becomes law without his signature.
About 6.3 million Californians, most of them making less than $46,420 a year, aren’t covered by an employer-provided retirement plan, according to a June 2012 study by the Labor Center of the University of California, Berkeley. De Leon cited the research in promoting his legislation.
De Leon introduced bills in 2008 and 2009 that would have put Calpers in charge of retirement accounts for private-sector workers, including those at nonprofit organizations, without a workplace retirement plan. The measures were opposed by both unions and financial firms, and neither came up for a vote.
The California Chamber of Commerce opposed de Leon’s current bill. The state’s largest business organization said the measure would subject employers to “significant cost” and also deprive workers of income, in a statement on its website.
“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,” according to the statement.
The measure wouldn’t automatically entrust the new retirement accounts to Calpers. Rather, the fund, which manages benefits for 1.6 million public employees, retirees and beneficiaries, could bid for the asset-management business in a process overseen by an investment board headed by the state treasurer. Private firms could compete to manage all or part of the money.
In analyzing the 2008 and 2009 proposals, Calpers estimated that starting the program would cost about $1.69 million over two years, according to an Assembly staff analysis of the current bill. It said startup costs could exceed $10 million.
Once established, the program’s costs would be covered by investment income, the analysis said. Calpers hasn’t taken a position on the bill.
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