On September 28, Gov. Jerry Brown signed into law a bill that requires private-sector companies with five or more employees to either offer an employer-sponsored retirement plan or automatically enroll their employees in the state’s new Secure Choice retirement plan. Workers are not required to participate in the state-run program, which would deduct three percent from their salary to go to the retirement plan; they may opt out.
The California retirement fund mandate follows similar legislation in Connecticut, Illinois, Maryland, and Oregon, which instituted state payroll deduction savings programs. Based on the current legislative landscape, it is expected that other states will soon follow in making retirement plans mandatory for private-sector workers, according to the website Pension Rights Center.
California businesses had expressed concerns that the bill could make them liable under federal retirement rules, but last month the U.S. Department of Labor issued final regulations on state-run retirement accounts that are aimed at holding businesses harmless in collecting Secure Choice contributions from workers, as reported by the Sacramento Bee.
“This is a major step forward for retirement security in America,” said the bill’s sponsor, California State Senator Kevin De León. “I am grateful for Gov. Brown’s acumen, and with his leadership we are setting the path for middle-class, hard-working Americans to prepare for retirement, so they won’t be forced into poverty. There is still much work to do ahead, but this could serve as a national model for retirement savings.”
According to the state treasurer’s office, employers would have “minimal” administrative duties but would be required to do the following:
- Enable employees to make an automatic contribution from their paycheck into their Secure Choice Account.
- Transmit the payroll contribution to a third party administrator to be determined by the Board.
- Possibly provide state developed informational materials about the program to their employees. (The state is exploring whether a third party could take on this role, instead of asking the employer to distribute the informational materials.)
The California law also stipulates that eligible employers with more than 100 employees will be mandated to participate within 12 months after the program is open for enrollment, while those with 50 to 100 employees will be mandated to participate within 24 months after the program is open for enrollment. Those business owners with fewer than 50 employees will be required to participate within 36 months.
California is the fifth state to mandate that private-sector employers enroll their workers into a state-based retirement program if they do not offer one already. However, similar programs are being considered in 23 states: Arizona; Colorado; Indiana; Iowa; Kentucky; Louisiana; Maine; Massachusetts; Minnesota; Nebraska; New Hampshire; New Jersey; New York; North Carolina; North Dakota; Ohio; Rhode Island; Utah; Vermont; Virginia; Washington; West Virginia; and Wisconsin.
More information about these programs can be found at the Pension Rights Center, which offers a full description of each state bill.