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ICI Criticizes Report Recommending That California Establish State-Run Retirement Plans

Steven.Lofchie@cwt.com's picture
Commentary by Steven Lofchie

The State of California released a report on the program design, market analysis, and financial and legal feasibility of establishing state-run, tax-advantaged, retirement investment plans for workers who do not have access to an employer-sponsored retirement savings plan. Participation in the plan would be mandatory for California employers of five or more persons (e.g., restaurants) that do not otherwise offer a retirement savings plan.

The Investment Company Institute ("ICI") raised objections to many of the report's estimates, assumptions, and conclusions, particularly those relating to the likely enrollment rate and costs of the program. Additionally, the ICI questioned the benefit of having the state government run the various retirement funds when there are so many private-sector options already available, which can be run at costs lower than those projected for the state-run funds.

Commentary

The argument that States should find ways to encourage retirement planning should be separated from the argument over who should manage the plans. Is there any reason to believe that State-employed managers would do a better job at managing assets than private-sector managers, particularly given the very substantial existing regulation of funds by the SEC?

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