SB 1234, a bill in California, proposes the creation of a state-sponsored retirement plan for private sector workers without access to a workplace plan. The plan would be a defined-contribution (DC) program based on an individual retirement account (IRA) platform, with assets managed in a pooled fund and workers guaranteed a rate of return on their contributions, insured by private underwriters rather than the state. This Policy Brief assesses the feasibility of such a plan by analyzing the private cost of guarantees, probable investment returns simulated through a hypothetical pension investment portfolio, and the long-term funded status of a hypothetical pension plan given conservative assumptions. Experts agree that while government is in the best position to insure DC plans, the private financial market can also insure benefit guarantees for a price. Recent research based in finance theory finds that the private market cost for insuring a minimum rate-of-return guarantee rises steeply with the level of the guarantee, and is much higher than the cost that would be charged by government.
