Cali’s Secure Choice Rebrands, Fast-Tracks for Launch

Another state-run IRA retirement plan for private sector workers is gearing up to go live.

The investment board for California’s Secure Choice program (now renamed “CalSavers”) last week approved final regulations and authorized its staff to search for a company to administer the program, according to the San Francisco Chronicle. Last fall the board issued an RFP for investment consulting services.

The Chronicle reports that the CalSavers staff is planning to issue a request for proposals from potential third-party administrators. The request asks them to bid on five investment options: a target-date or risk-based fund, a global stock index fund, a global bond index fund, a socially conscious fund and a capital preservation fund.

Quick Comment

The staff posted the regulations last week and plans to file them with the state’s Office of Administrative Law within a month, according to the report. Under an expedited review process known as emergency rulemaking, the public will have just 10 business days from the filing date to comment. Barring some contest or protest, the regulations would be in effect after the 10-day period, according to the Chronicle.

A pilot program could begin as early as this fall, and a phased introduction, starting with larger employers, would begin early next year. California would be the third state to create such an auto-IRA for private sector workers, following Oregon and Illinois. The Prairie State’s program is currently slated to be live before the end of the year, nearly four years after becoming the first state to authorize such a program.

Program Provisions

Under the CalSavers program, any employer with an average of five or more workers (full- or part-time) in California the previous calendar year that doesn’t offer an ERISA retirement plan would have to auto-enroll them in a payroll-deduction IRA (workers can opt out, as they have in striking numbers in the Oregon plan). Self-employed workers could opt into the program, which would not apply to out-of-state employees.

Unless workers opt out or otherwise change their contribution levels, the CalSavers program would require that workers have 5% of each paycheck automatically deposited into a Roth IRA, with auto-escalation of 1% per year up to a limit of 8% of pay (there is no employer contribution). The default directs the first $1,000 into the program’s capital preservation fund, and after that, the money would go into the target-date or risk-based fund (unless the worker chooses something different). There is a cap of $5,500 a year ($6,500 when they are 50 or older), just as with “regular” IRAs, and the income limitations that apply to Roth IRAs do so with these as well.

The Chronicle notes that workers who opt out or drop out of CalSavers could get back in only once a year during an open enrollment period in the fall.

As for fees, participants are required by law to bear all costs including administration and fund fees. The Chronicle reports that after six years of operation, fees would be capped at 1% of assets, but until then there would be no limit. The program is borrowing money from the general fund to get started, but participants must repay that loan. The fees for the program in Oregon are about 1%, while in Illinois, they are capped at 0.75%.

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