California Road Map for a Dignified Retirement

After a lifetime of hard work, every Californian deserves a secure retirement.

Unfortunately, the ability to retire with dignity has become an elusive dream for millions of Californians. More than one third of California households have virtually no savings. And nearly half of California’s workers are on track to retire with incomes below 200 percent of the federal poverty level — at an estimated $22,000 per year.

As someone who has spent his career protecting California’s economic future, I can’t stress enough how dangerous the situation we find ourselves in really is. Without an income to depend on, millions of our seniors will depend on the state and federal government to survive. And what our government is prepared to do to meet the basic needs of our elderly is entirely inadequate for the futures they will live.

This isn’t just an economic question we need to solve, but one of the biggest moral issues of our time. We can’t ask our elderly to work until the grave, and we can’t force seniors to choose between paying for their food or their medications.

We can and must do more to create a dignified retirement for all Californians. Establishing a stable and secure retirement for all is our generation’s call to action, and as governor, I will answer that call.

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Decades ago, the United States built a retirement savings system based on three strong pillars: Social Security, an employer-sponsored pension, and individual savings. Every individual, when they retired, could depend on these three forms of retirement savings to ensure they lived in comfort and dignity.

We know that the economic reality has changed. Very few companies are offering pension plans to their employees anymore. And as income inequality has grown over the decades, fewer and fewer families are able to put any money away, let alone save for retirement.

It’s no wonder, then, that more than 75 percent of California’s low and moderate income retirees rely exclusively on Social Security. Millions of Californians work for employers that do not offer a secure retirement plan. Those hardest hit are workers of color, almost half of which are Latino, and women. What’s more, subsequent generations are on track to retire with even less.

Retirement security for everyone begins with protecting Social Security. It currently provides the only fundamental base of financial security and dignity for Americans in retirement. In fact, if Social Security has a weakness, it’s that its benefit levels are too modest and have not kept up with the cost of living today.

I am the only candidate with a record of acting with honesty and integrity to protect the financial future of California. As governor, I will stand up to those in Washington who would cut Social Security or gamble the retirement savings of our seniors in the stock market. And I will continue to strongly oppose schemes like the Trump/Ryan tax plan that threaten the funding of programs our seniors depend on, all while giving tax breaks to Wall Street and billionaires.

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Outside of Social Security, defined-benefit pension plans used to be the cornerstone of our retirement system. The American Dream was working a steady, middle-class job with the promise of a sound pension in retirement.

Unfortunately, employers are continuing efforts to replace traditional pensions. Workers have been left with poorly funded 401(k) style pension plans, which offer little security for workers in their retirement years.

The majority of those who receive pensions are members of a union, and through the union’s collective bargaining power, they are able to help set pay standards, guarantee worker protections, and defend traditional pensions. I strongly support the rights of workers to come together and choose to form a union and bargain collectively for better wages, better working conditions, and better benefits.

As governor, I will continue to be supportive of and defend the virtues of defined benefit pension plans. They are the gold star for retirement savings, and we should be doing everything possible to encourage employers to sponsor these benefit plans for their employees.

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A new report by Willis Towers Watson reveals that among Fortune 500 companies, only 16 percent offered a defined benefit pension plan to new hires in 2017 — down from 59 percent in 1998.

At a time when more and more Californians are facing an uncertain and unsecure retirement, we can’t exacerbate the problem by minimizing or removing pensions. Instead, we must create a secure retirement for everyone.

This is why I was one of the chief architects of Secure Choice — now called CalSavers — the most ambitious and sweeping plan to expand retirement security since the passage of Social Security in the 1930s. CalSavers is a voluntary savings plan for private-sector California workers that incurs no cost or liability to taxpayers or participating employers. It offers hope and protection to 7.5 million Californians who are careening toward an impoverished retirement, in which they face the all-too-real scenario of whether to spend their meager retirement on food or rent.

As Chair of the Secure Choice Board, we are setting up a program that provides for an automatic payroll deduction for private sector employees in California who lack access to a workplace retirement plan. This will offer millions of Californians an easy way to save for a more comfortable and dignified retirement.

Despite efforts by the current Trump-era Congress to block Secure Choice, I will continue to push back and forge ahead with implementing a retirement savings plan for millions of individuals. We have the opportunity to assist 7.5 million Californians in building a nest egg – with their own money – so they don’t have to choose between paying rent and buying groceries in their retirement years.  This is a challenge we should embrace for the well-being of our retirees and for the economic security of California.

 

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We can’t avoid the tough questions about how to place our public pension systems on more sure footing. Those issues are absolutely necessary if we want to protect defined benefit pension plans in the future. As an ex-officio board member of CalPERS and CalSTRS, I’ve fought to protect benefits and improve the financial stability of the country’s two largest public pension plans.

To address this trend, the California Public Employees’ Pension Reform Act (PEPRA) went into effect in 2013. PEPRA applies to new employees and puts a cap on the amount of compensation that can be calculated to determine a retirement benefit. This reform is expected to generate savings during the next 30 years of up to $55 billion for state, schools, and local agencies, as current employees retire and new employees are hired.

Growing pension liabilities not only crowd out spending on education, infrastructure, and other important investments, but also jeopardizes the affordability and sustainability of defined benefits for public employees. For this reason, we should continue to support the implementation of PEPRA. By allowing PEPRA to chip away at unfunded liabilities, we are working to eliminate pension obligations from being pushed onto the next generation.

The lesser known sibling to unfunded pension liabilities is ballooning medical costs for retiree healthcare. Some consider this to be an even greater threat to the financial stability of state and local governments because it’s expanding at such an alarming rate, and unlike pension liabilities, we are setting virtually no money aside to pay for them.

The breadth of this issue was not apparent until I, as state controller, commissioned the first report on the costs for state retiree health and dental benefits, referred to as Other Post Employment Benefits (OPEB).  Since then, California’s OPEB liability has grown from $47.88 billion to $74.10 billion in just ten years. If no changes are made to the state’s method of funding retiree health care costs, the unfunded liability will grow to more than $100 billion by the 2020-2021 fiscal year, and $300 billion by 2047-2048. The numbers are simply staggering.

The current pay-as-we-go model of funding retiree health benefits is short-sighted and a recipe for undermining the fiscal health of future generations of Californians. We must require all public agencies providing post-retirement health and dental benefits to plan ahead by pre-funding the resultant liabilities. Assets would be invested in an irrevocable trust for the sole purpose of paying future required pension contributions. Both employers and employees would make annual contributions in order to ensure that there are no unfunded liabilities that are transferred to future generations of taxpayers or employees.

We can’t avoid the tough issues associated with retirement benefits any longer. We owe it to the public employees who have earned this benefit — and to future generations of Californians who will earn these benefits — to protect them for the future.

You can rest easy knowing that I believe it is a moral imperative to ensure all seniors can retire with dignity. As governor, I will tackle these issues with the same sensible fiscal responsibility I’ve brought to California throughout my entire career.