California’s Private Sector Retirement Plan About to Become a Reality

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California is on the cusp of finalizing its plan to create a private-sector, state-run retirement plan. Under the plan, called CalSavers, employers with five or more employees that don’t already provide a retirement plan will be required either to offer a retirement plan of their choosing (no employer match necessary) or to provide their employees access to the state-run program.

At a meeting in early March, the CalSavers investment board approved final regulations and directed staff to seek out a company to administer the program, Katie Selenski, executive director of CalSavers, told the San Francisco Chronicle. California will be the third state to offer a state-run plan, following in the footsteps of Oregon and Illinois.

Many small business owners praised the plan, which is four years in the making. Christin Evans, owner of The Booksmith, in San Francisco, told the Chronicle: “We have employees just out of college or high school, and they’re not able to really think about establishing a retirement plan.”

She noted that “they are typically struggling to pay rent and meet their basic needs” and said that the plan “tries to address a culture of saving” for low-wage and small-business workers. “I have employees who are quite excited about this possibility,” she said. “It’s also a benefit to me. They are less likely to move on to employers who have richer benefits.”

Polling by the Small Business Majority and the American Association of Retired Persons (AARP) revealed that two-thirds of small business owners in California support a state retirement-savings program, the Chronicle reported.

CalSavers is expected to be fully operational in late 2018, according to the website of California State Treasurer John Chiang. The employer mandate will be phased in over a three-year period. The plan calls for employers with 100 or more employees that do not offer a retirement plan to provide either a retirement plan or access to CalSavers in 2019. Employers with more than 50 employees will be mandated to participate within two years after the program is open for enrollment, which is likely to be 2020, the treasury website noted. Within 36 months, all employers with fewer than 50 employees will be required to participate, likely in 2021.

Employers who elect to enroll their employees in CalSavers will have limited administrative responsibilities, the treasury noted. They would be required to enable employees to make an automatic contribution from their paycheck into their CalSavers account; transmit the payroll contribution to a third-party administrator to be determined by the Board; and provide state-developed informational materials about the program to their employees.

Workers enrolled in CalSavers would have five percent deducted out of their paycheck and deposited into a Roth IRA, the Chronicle article noted. The percentage would increase by one percentage point each year until it hits a maximum of eight percent.

Employees can opt out of the program if they choose.