SACRAMENTO, Calif. — California has joined a growing list of states interested in allowing private-sector employees to invest their retirement savings through a state pension plan.
Assemblyman Kevin de Leon, assistant majority leader, introduced a bill April 8 to create the California Employee Savings Program, or CalESP. The program would invest automatic deductions from a worker's pay into a tax-deferred individual retirement account managed by the $237.3 billion California Public Employees’ Retirement System, Sacramento.
Several other states, including Washington, Maryland, West Virginia, New Hampshire and Pennsylvania, are considering similar legislation.
And in Connecticut, the state comptroller's office backed a bill, to be introduced in the state Legislature, to create a state-sponsored 401(k) plan for small businesses.
Dan Reeves, chief of staff for Mr. de Leon, said CalESP probably would offer a menu of investment options, and matching contributions from employers would be optional. The plan would be portable, allowing workers to continue investing as they change jobs, he said. Employers without retirement plans could participate.
If the proposal is approved by the Internal Revenue Service, CalPERS would administer it with fees paid by the account holders, said Mr. Reeves.
California Gov. Arnold Schwarzenegger voiced support for the bill.
“This legislation will help make businesses more competitive, without costing them anything, and will help employees save for their retirement, without costing taxpayers anything either. It is a great example of doing "more with less' to help California businesses and hard-working employees. This really is a win-win for everyone and it will make our small businesses and our employees financially stronger,” Mr. Schwarzenegger said in a news release.
CalPERS executives are reviewing the bill, said fund spokesman Brad Pacheco. Board members will decide next month whether to support it. Russell Read, CalPERS' chief investment officer, did not return calls seeking comment.
The proposal in California is the latest in a series of efforts by officials to use state pension fund expertise to help private-sector workers.
In Connecticut, investment options in the proposed 401(k) plan would mirror the 20 options in Connecticut's 401(a), 457 and 403(b) plans, which have a total of $2 billion in assets. Those plans, administered by ING Retirement Services, Hartford, have institutionally priced mutual funds and fees consistent with government-sponsored plans.
Thomas Woodruff, director of retirement and benefit services for Connecticut's defined contribution plans, said roughly 75% of Connecticut employers with fewer than 100 employees do not offer retirement plans. He added that the lower fees available through a state-sponsored plan could provide an incentive for employers to join (Connecticut small-business 401(k) would be the first for U.S., P&I, March 3, 2008).
Other public retirement systems also have worked on expanding their platforms.
The New York City Deferred Compensation Plan added an IRA in November to its combined $8.5 billion 457 and 401(k) plans, said Georgette Gestely, director. She said the average expense ratio for equity options in the IRA plan is 0.5% vs. 1.5% for retail mutual funds in outside IRAs. The IRA is also available to spouses of plan participants.
New York City's IRA has the same low-cost investment options, including pre-arranged portfolios, as the deferred compensation plan, said Ms. Gestely.
Contact Jenna Gottlieb at [email protected]
