California has, once again, taken a bold move that is making the rest of the country take notice. We are clear-cutting the path for supplemental retirement savings.
More than half the employees who are offered a company-sponsored retirement savings plan, such as a 401(k), do not participate. As if that weren’t bad enough, 33 percent of Americans do not have any type of retirement savings at all.
On Sept. 29, 2016, Gov. Jerry Brown signed Senate Bill 1234, the California Secure Choice Retirement Savings Program. The program is meant to supplement Social Security by offering participants an opportunity to automatically save 3 percent of their annual earnings in a managed, low-risk retirement account.
This new law goes into effect Jan. 1, 2017, with a special board and oversight committee lead by current Treasurer John Chiang. The board will hire private firms to manage the investment portfolio and individual accounts; it will secure underwriting through private insurers.
Once the infrastructure is built to implement and maintain the program, the Employment Development Department (EDD) will be responsible for collecting the contributions through payroll deductions, much like current state disability and unemployment withholdings. Although employers will be required to offer Secure Choice to their employees, the burden of administration will be on the state.
Secure Choice will be rolled out in stages, with larger companies of 100 employees or more participating within 12 months of the program’s official start. Employers with more than 50 employees will be required to participate within 24 months, followed by the remaining small businesses within 36 months.
A person making the median California income of $57,000 annually could save substantially more than $30,000 in retirement income during the next 20 years. Every dollar saved now will help supplement social security income when you retire. Residents would be well-advised to take advantage of the state’s effort to ensure its working citizens are not left behind.
If you have questions about offering the new program, please contact me.