Our politicians, our legislators, they are always right, and they're all about our well-being, our future. We owe them.
After all, where would we be without our government?
Would any of us have succeeded at anything without their helping hand? Where would we be without the handouts they shower us with from the small tax burden they ask of us?
Now, in their infinite wisdom, our leaders are looking out into the future to make sure our retirement prospects are financed and our promises to ourselves are fulfilled.
I'm calling it one small step for Californians, one giant leap for Americans.
I'm talking about California Senate Bill 1234 and what it will do to guarantee (because you know only the government can guarantee anything, and mean it) a securely financed retirement for private sector workers in California (some 6.3 million of them) who presently don't have a pension plan or retirement fund to fall forward onto.
Oh, this is brilliant. It is a model for the rest of America. Now that we've got Obamacare, we're going to get Obamatirement, too, when the rest of the country sees what California is trying to do.
Let's take a look…
The bill was concocted by the Assembly Committee on Public Employees, Retirement, and Social Security and approved by a vote of 23-13. It establishes the California Secure Choice Retirement Savings Program "to operate as a state-administered retirement savings plan for private sector workers who do not participate in any other type of employer-sponsored retirement."
It's an opt-out program. You're in until you're out. And if you're out, your employer will have to pay a smallish $750 penalty (every year). When you're in, you'll have 3% of your income skimmed and sent to some manager of money (they could be a private pig or a public sow), and someone you don't know will decide who gets to manage your retirement money.
You won't care what they invest in, or that you might be a better manager of your own future, because the returns will be guaranteed, you know.
Yes, an insurance company, that you won't pick, will guarantee your return will be at least… are you ready for this… equal to the return on the U.S. Treasury 30-year bond. In other words, close to 3% year or more, but not likely to be too much more than the rate of inflation. Whatever, it's guaranteed, you know.
But what about the insurance company that guarantees your future? Who will guarantee their future? Oh, you worry too much. The government, of course! The chosen insurance companies will all be too big to fail, and if they do, guess who steps in?
You can't lose on this one.
And who cares that the pay-to-play game will be huge on this scheme? That there will be huge monies to manage for giant fees and some private playas might pony up some fat envelopes of you-know-what to get that business that you won't have any discretion in meting out?
Or, maybe, if you're lucky, your money will be directed to the brilliant managers of the California Public Employees' Retirement System (Calpers), who get your money for the political favors they buy with their fees for managing it.
It's just so circuitous that you can only call it what it is: a positively crooked feedback loop.
Anyway, they do a good job, those Calpers managers…
Why, in the past five years they've generated almost 0.57% per year. That's right – that's not the same as the 30-year bond, but it's close to what you get in a savings account or a 30-day CD. Brilliant.
Don't be so cynical. This is not another tax; this is another pox. A pox on Californians if this Bill passes, and a pox on America if it morphs into Obamatirement.
Of course, I'm kidding. Our pension schemes, the public ones and the private ones, are all doing just fine, thank you.
I'm not worried that private pensions are underfunded by more than $600 billion (according to S&P) or that public pensions are underfunded by between $1 and $4.6 TRILLION dollars, folks.
Why worry? The IRS just ruled, on authority of a Transportation funding bill (Highway Bill S.1813), that the discount rate (the thingy that is used to calculate how well funded pensions are) can be tweaked to help corporations. The long and short of it is, corporation's contributions to their pension plans in 2013 just went down from $78 billion to $8 billion.
Who says the government can't make magic?
I wrote about this stuff here before, but you might want to re-read it in light of this new wrinkle called Bill 1234.
Not that there's anything to worry about.
Our politicians, our legislators, have our best interests – and their deep pockets – always front and center, unless they're at the back door.
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Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
He helped develop what has become known as the Volatility Index (VIX) - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
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