Dan Walters

By Dan Walters
August 7, 2016 – 4:46 PM

When Kevin de León talks about creating pensions for low-income workers, he cites his aunt, a housekeeper for many years, as an example.

“My aunt had to keep working until her body physically gave out,” de León said at a news conference earlier this year. “She relies on me as her 401(k) to help her through her retirement.”

De León’s aunt may have inspired him, but the program he wants, dubbed “Secure Choice,” is actually part of a nationwide movement that’s being implemented or proposed in a number of states.

Whether it takes hold in California depends on whether de León’s fellow Democratic politicians enact an embryonic plan that still has many unresolved issues – including the financial risk/reward tradeoffs of any retirement system that’s keyed to investment earnings, and whether the state’s taxpayers might be on the hook for any shortfalls.

De León, president pro tem of the state Senate, will seek approval during the final weeks of the biennial legislative session, relying on assurances of a board that’s been studying the matter for several years and a positive feasibility study by an outside consultant.

If enacted, Secure Choice would compel millions of workers who lack employer-based retirement benefits to divert escalating portions of their paychecks into what amounts to individual retirement accounts, unless they opt out.

A best-case scenario put forth by the consultant is that a worker could divert 5 percent each year into a fund for 42 years, retire at 67 and receive a lifetime income equal to 24 percent of final-year wages.

But that’s a best-case scenario, and with normal work interruptions, early withdrawals and other factors, actual retirement income could easily be much less, according to an analysis by Capitol Matrix Consulting for the program’s critics.

To read expanded column, click here.