By John Carl The ERISA consultants at the Columbia Management Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. A recent call with an advisor in California is representative of a common inquiry related to state retirement plans. The advisor asked: “I heard California has a new retirement plan for private-sector employees called the California Secure Choice Retirement Savings Trust. Can you tell me what that is and how it works?” While it is true that California has enacted two bills (Senate Bills 923 and 1234) that establish the framework for a state-sponsored retirement plan for private-sector employees, the California Secure Choice Retirement Savings Trust (CSCRST) is still one giant step away from implementation. SB 923 mandates: “The board shall not open the program for enrollment until a subsequent authorizing statute is enacted that expresses the approval of the legislature for the program to be fully implemented.” Therefore, the California legislature must enact another law to fully implement the arrangement. Senate Bills 923 and 1234 describe the CSCRST framework as follows: • A mandatory, IRA-based, payroll deposit retirement savings arrangement for employees of certain private sector employers in California • Run by a nine-member board determined by the state • Eligible employers would include for-profit or nonprofit, private employers with five or more employees that do not currently have a workplace retirement plan • Federal, state and local governmental entities would be excluded • Eligible employers must participate in the program or face a fine • Eligible employees must participate in the program through salary deferrals unless they formally opt out • Employee and employer contributions would be allowed up to the maximum annual traditional IRA limit • “IRA” means an individual retirement account or individual retirement annuity under Section 408(a) or 408(b) of the Internal Revenue Code • The board must adopt an investment policy statement with the primary objective of preserving the safety of principal and provide a stable and low-risk rate of return • The board would determine investment options • The trustee would invest the assets
John Carl, President, Retirement Learning Center, LLC
According to the National Conference of State Legislatures, at least 11 other states have proposed the idea of a state-run retirement plan for employees of private companies, including Connecticut, Illinois, Maryland, Massachusetts, Michigan, Pennsylvania, Rhode Island, Vermont, Virginia, Washington and West Virginia. Wisconsin lawmakers are expected to introduce a proposal in the near future. While the CSCRST in not operational at this time, it is a long way down the path to fruition. Financial advisors may be able to use this development as a way to jump-start conversations with business-owners on the merits of voluntarily establishing a traditional-style retirement plan for their employees. John Carl is the President of the Retirement Learning Center, LLC. The Columbia Management Retirement Learning Center Resource Desk is staffed by the Retirement Learning Center, LLC, a third-party industry consultant that is not affiliated with Columbia Management. For informational purposes only. Please consult a tax advisor or attorney for specific tax or legal needs. © 2012 Columbia Management Investment Advisers, LLC. Used with permission.
