California Legislature Passes State-Run Retirement Plan Proposal for Private Workers

The California legislature last week sent a bill to Gov. Jerry Brown’s desk that would require all businesses with more than 5 employees to either offer a retirement plan or enroll their employees in the state-run Secure Choice plan.

[Read the bill here].

More from the LA Times:

Secure Choice would be structured as an individual retirement account but operate much like a 401(k), with a small percentage of every paycheck automatically diverted into the program unless workers take action to opt out.

Workers could take their accounts with them when they change jobs and would face a penalty for withdrawing money before retirement. It has not yet been decided whether the deductions will be made pretax like a traditional IRA or post-tax.

Once the bill is signed into law, there will be a significant buffer period before employees can be enrolled. More details from the LA Times:

State officials said it will take months, if not more than a year, to work out all the details before the plan can begin enrolling employees.

The Secure Choice program will be overseen by a state board, but most of the work of administering the program — sending account statements, tracking worker contributions and investing money for the program — will be handled by private companies. The board will have to choose those contractors before the program can start enrolling workers.

Once the program starts, it will take as long as three years for all workers to be covered. SB 1234 calls for companies with more than 100 employees to enroll workers within a year of the program’s launch. Smaller employers will have as much as two additional years, depending on their size, to get their workers signed up.

A trade group representing some investment managers penned a letter to Gov. Brown urging him not to sign the bill.

Meanwhile, the New York Times’ editorial board last week endorsed California’s Secure Choice plan was a “better way to retire”.