The Golden State is trying to make everyone’s golden years a little more comfortable.
California’s state-sponsored retirement program, called CalSavers, is now out of the pilot phase and officially available to the public. The automatic enrollment program sets up an individual retirement account for employers to offer their workers, who can make contributions through payroll just like they would if they had a 401(k) plan. California is the third state to run with this program, following Oregon and Illinois.
See: Don’t have a 401(k)? State governments have a retirement plan for you
More than 1,600 of CalSavers’ 2,700 open accounts were funded during the pilot phase, which began in November 2018, said Katie Selenski, CalSavers’ executive director. The average contribution is about $91 a month for full- and part-time employees (or a savings rate of around 5%) and the opt—out rate, which is how many employees chose not to participate, was 22.5% as of Friday.
Under California’s rules, employers have to offer their own retirement plan — through a custodian of their choice — or facilitate the state-sponsored retirement plan CalSavers offers. The three-year roll out for the program began on July 1, and there are three deadlines for all eligible companies in the private sector: employers with more than 100 employers must enroll in CalSavers or offer their own plan by next year; employers with more than 50 employees have two years; and employers with five or more workers have three years.
The adoption of this plan comes as research shows that a high number of Americans lack a retirement savings plan. More than half of private-sector workers in California between ages 25 and 64 have no retirement savings plan or pension, according to a new study at UC Berkeley Labor Center released Monday. Americans in general are struggling to fund a retirement account, and typically put in less than they may actually need to have enough come retirement.
CalSavers has not been without its hiccups during the pilot phase. The Howard Jarvis Taxpayers Association and other nongovernmental employees sued the program last year, accused it of not adhering to the federal law that oversees private workforce retirement plans, known as the Employee Retirement Income Security Act of 1974 (ERISA). The U.S. District Court for the Eastern District of California ruled it is legal for California to proceed with the program, and that the accounts do not pre-empt the law because the state is administering the program, not the employer. The plaintiffs have filed an appeal, which is currently in process, Selenski said.
Other critics argue the program will hinder the success of the investment industry, and that these accounts are not as beneficial as a 401(k) plan because of lower contribution limits and less investment choices. Selenski said the program may inspire some employers to find their own retirement plans, especially those who are not in favor of CalSavers’ offerings, and that the state would be happy with that consequence as well.
California is expanding to offer CalSavers to self-employed workers beginning Sept. 1. The state also created a bilingual app for Spanish speakers available in July.
Also see: Congress gets serious about retirement saving
Other states have expressed interest in a state-sponsored retirement plan for employers. New Jersey’s governor signed a bill to begin preparations for its own system earlier this year, and 20 other states and cities have introduced proposals for similar programs. The judge’s decision in favor of CalSavers likely encouraged states to move forward with a state-sponsored retirement program, as well as relieved them of the stresses they may have had over lawsuits, experts said.
Source : MTV
