08.21.2013 1

California’s grisly retirement scheme

california-republic-monopoly-man

By Rick Manning

The Grizzly Bear graces the California state flag, a perfect symbol of strength for the once golden state, since the fearsome bear is extinct within the state borders.  Fear not, the mighty grizzly thrives elsewhere just not in California.

Over the past twenty years, the state has become a font of bad ideas, and now the fine folks in Sacramento have another one.

Legislation is working its way through the process that would put an additional three percent payroll tax on the paychecks of workers who’s employers have at least five employees and don’t have a 401(k) plan, so the state can set up their own mini-social security fund.

Of course, they don’t call it that, they say it is a defined benefit plan, meaning those unfortunate’s who lose three percent of their pay today, can hope that the state will have invested their money wisely so they can receive a small pension upon reaching the age of 65.

What could go wrong?

California is not exactly renowned for its stellar fiscal management, and those caught in the mandatory retirement savings scheme could be almost certain that somewhere down the line some enterprising lawmakers would raid the fund leaving replenishing it to some future Governor when the promised payouts came due.  If you have any doubt, just look at what is happening all around the state.

Elected officials in cities like San Bernardino, Los Angeles, San Francisco and San Jose are now struggling due to past decisions to put off paying their existing public employee pension promises.  Imagine what will happen to the money of average citizens who don’t have multi-million dollar political war chests to ensure their elected officials are good stewards of their retirement funds?

Moody’s, the bond rating service which determines state and federal government’s likelihood of repaying debt is in the process of reassessing how Sacramento counts its public pension obligations, and the new credit standards are not good news for Californians.  The state’s unfunded liabilities for state and local pension plans is expected to grow to $328.6 billion from $128.3 billion under the new accounting rules according to the California Public Policy Center.

And none of this takes into account the devastating impact to families living paycheck to paycheck who suddenly discover that a full one hour and twelve minutes of their forty hours worth of pay has been confiscated with a promise it will be paid out in an annuity after they turn 65.  Someone, somewhere in the hallowed halls of the puzzle palace that is the state capitol thinks it is a good idea to force someone scraping by on $50,000 a year in one of the most expensive economies in the world with $3,000 less  (about the equivalent of one month’s after taxes pay) take home pay.

Perhaps the most amazing part of this plan is how it discriminates against those who have shorter life expectancies.  If you don’t live until the age of 65 to collect your meager handout from the state, you are not allowed to transfer that wealth to loved ones and there is no annuity to collect.  According to the Center for Disease Control, a black male born in 2008 has a life expectancy of just slightly more than 70 years, a white male born at the same time is expected to live about six years longer.

This difference in life expectancy between the races is why Star Parker of the Coalition on Urban Renewal and Education wrote in 2000 that the federal Social Security System defined benefit annuity is, “is racism disguised as compassion.”

What’s more, since the $1,500 that would get taken from the hypothetical $50,000 a year worker every year is paid out in an annuity, when the worker dies, there is no nest egg to be passed on.  The money belongs to the state.

So what does this mean for those who don’t live in California?  A lot!

California’s Nancy Pelosi is already measuring the drapes in the Speaker’s office in the hopes of a reprise of her four year reign of terror holding the gavel.

Congressional Democrats have already started the process of considering similar schemes that are even more draconian.   Additionally, the most extreme proposals bandied about inside the Obama Administration would allow the government to liquidate individual retirement accounts, 401(k)s and other tax deferred retirement funds and pay out an annuity through a Government Savings Account.

This California story could well become a U.S. story as the golden state is nothing more than a laboratory for every government expansion that can be dreamed up in order to discover how much the average American will put up with from their “well-meaning” government.  .

The state flag of California has a bear on it.  Today that flag is a reminder of the grisly consequences of big government and false compassion of power hungry politicians and bureaucrats.  Let’s hope this California retirement tax doesn’t find its way across the Sierra Nevada’s.

Rick Manning (@rmanning957) is the Vice President of Communications and Public Policy for Americans for Limited Government.

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