Secure Choice

Will California Start Retirement Plans for Low-Income Workers?

Secure Choice
October 10, 2016

Have you fallen through the cracks of employee retirement plans? As a private sector employee, you may feel this way when your employer does not offer an employee retirement plan as part of your benefit package. With your own retirement program, you may not receive the same benefits because of the leverage of employer group plans — and you gain the added headache of managing your own retirement plan.

State governments are looking to fill this gap by providing state-run retirement plans for private sector workers who do not have employer-run plans as an option. California has been trying to establish such a program for years, known as Secure Choice. Secure choice is tantalizingly close to becoming reality.

The California Secure Choice Program was born in September 2012 when Governor Jerry Brown signed the California Secure Choice Retirement Savings Trust Act. The program was designed to require businesses with five employees or more to enroll their employees in the state-run retirement program if they do not offer an employer-based option. Employees would be able to opt out if they prefer not to participate. State backing makes the plan portable, since it is not tied to any specific job.

After much study, the necessary legislation to implement the Secure Choice Program was introduced in the California legislature in February 2016. It passed the California Senate, but was modified in the General Assembly. As of this writing, it is expected to pass the concurrence vote in the Senate and make it to Governor Brown's desk. The tentative start date for California Secure Choice program is January 1, 2017, assuming it passes the Senate and is promptly signed.

Under the California program, default contributions are currently set at 3% of salary. Employees can alter the amount to up to 8%, with increases limited to 1% per year.

Currently, employers can only make contributions to employee accounts if the IRS code allows the practice and the Secure Choice program does not become subject to the Employee Retirement Income Security Act (ERISA) — a topic for debate until late August. Recent final rules issued by the Department of Labor clarified that ERISA would not apply to Secure Choice programs as long as they follow specific guidelines, opening the door for wider acceptance.

Indeed, California's efforts have sparked programs in other states. California may be the closest to implementing Secure Choice, but seven other states have passed legislation for similar programs (Connecticut, Illinois, Maryland, Oregon, Washington, Massachusetts, and New Jersey). In all, 28 states have passed or at least introduced legislation to start similar programs. Find out here if your state is on the list.

The Department of Labor also issued a proposed rule allowing counties and cities of sufficient size to offer their own similar retirement programs in states that do not plan to offer Secure Choice or a similar program. As currently proposed, a city can create a Secure Choice type of retirement program if the population is at least as large as that of the least populous state (as of the 2013 census, that is Wyoming at 582,658).

Assuming California does beat other states to the finish line in placing Secure Choice into law, state legislatures across America will be eying the California program for clues on how to modify or enact their own programs. Success in California is likely to accelerate programs already in progress in other states. Once again, a trend starts in California and spreads across the nation.

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