If California’s proposed retirement savings program gets through the study stage and is actually implemented, California will have the first automatic payroll deduction IRA program in the nation.
Under the program, all non-governmental California employers with five or more employees would be required to make workplace retirement savings available to employees. Workplace retirement savings could be any type of employer-sponsored program, from a DB or DC plan to an automatic payroll-deduction IRA arrangement. A “Retirement Investments Clearinghouse” funded by interested vendors will be made available on the program’s website to provide information on registered vendors and the types of employer-sponsored retirement savings plans that are available to employers.
Employers who do not choose a private provider would be defaulted to the “California Secure Choice Retirement Savings Program,” a state-run payroll deduction IRA program. These employers would automatically withhold 3% of pay and forward those contributions to the state-run program for investment. Employees could opt out or elect to contribute more or less than the 3%.
Employers’ only responsibility will be to withhold contributions from employees’ pay and forward the contributions on for investment. The bill makes it clear that at any time, any employer can choose to set up a retirement plan with a private provider and stop withholding contributions for the state program.
The state-run IRAs are to have a guaranteed rate of return, declared in advance of the year, and distributions are to be made in the form of lifetime income based on accumulated account balance at retirement. The risks associated with these guarantees must be privately insured.
For more information on the legislation, click here.
Miller is Director of Retirement Policy and Executive Director, ASPPA College of Pension Actuaries, at the American Society of Pension Professionals and Actuaries.
