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Case of the Week: California Secure Choice Retirement Savings Trust

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: “Are there any updates on the California Secure Choice Retirement Savings Trust? Any idea when the program will be in place?” Highlights of Discussion • First, a little background. The California Secure Choice Retirement Savings Trust would be a state-sponsored retirement plan for private-sector workers in California who currently lack access to a retirement plan through their employers. (More details are provided below.) • Here’s the latest we know. Before the California legislature can fully implement the program, the California Secure Choice Retirement Savings Investment Board (the Board) must conduct a market feasibility study. Upon completion of the study, the Board will provide the results and its recommendations to the legislature. • According to Senate Bill (SB) 1234, “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. Whether it will do that depends on the recommendations from the Board and the outcome of the feasibility study. • In September, the Board issued a request for information (RFI) seeking input from financial service providers and other experts to help design the proposed program. Written responses to the RFI are due Nov. 15, 2013. • According to the rough time line included in the RFI, the feasibility study would be conducted sometime between April 2014 and October 2014, with the Board issuing a final report to the California legislature by end of next year. Enactment (or failure) of an authorizing statue is not anticipated until July 2015 at the earliest, with enrollment (if approved) beginning 2016 at the earliest. • SB 1234 describes the framework for the California Secure Choice Retirement Savings Trust 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; and — the trustee would invest the assets. Conclusion According to the National Conference of State Legislatures, at least 12 other states have proposed some time of a state-run retirement plan for employees of private companies, including Connecticut, Illinois, Maryland, Massachusetts, Michigan, New York, Pennsylvania, Rhode Island, Vermont, Virginia, Washington and West Virginia. Wisconsin lawmakers are expected to introduce a proposal in the near future. While the California Secure Choice Retirement Savings Trust 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. Apex Logo 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. © 2013 Columbia Management Investment Advisers, LLC. Used with permission.

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