In California, a bill that is expected to be signed into law will require private-sector companies with five or more employees either to offer an employer-sponsored retirement plan or to automatically enroll their employees in a new state-run Secure Choice retirement plan, according to California’s Office of the State Treasurer.
The bill, California Secure Choice (S.B. 1234), passed the state Assembly on Thursday, August 25, and now heads back to the Senate for a final vote. The Senate is likely to pass S.B. 1234, and it is expected that Gov. Jerry Brown will sign the bill into law, as reported by Pensions & Investments Daily.
If it is signed, California will become the first state to require companies to offer employees a retirement program, though other states are looking into it. According to the New York Times, Connecticut, Oregon, Maryland, and Illinois are moving forward with their own state-wide retirement programs.
According to a fact sheet released by California’s Office of the State Treasurer, at present, more than 75 percent of California’s low and moderate income retirees rely exclusively on Social Security, which leads to significant economic hardship and places a strain on taxpayer-funded health and human services, ultimately undermining the long-term financial stability of the state.
Moreover, more than half of California workers ages 25 to 44 have projected retirement incomes of 200 percent below poverty. The treasurer’s fact sheet also notes that 7.5 million Californians work for employers who do not offer retirement plans, and, of those, two-thirds work for businesses with fewer than 100 employees; two-thirds are workers of color, almost half of whom are Latinos; and 58 percent are women.
According to the 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.)
Workers are not required to participate in the program, which would deduct three percent from their salary to go to the retirement plan. They may opt out.
The bill 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 more than 50 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.