Savings plan for workers required

State law seeks to ensure money for golden years

SACRAMENTO — Nearly 7 million Californians who work jobs without retirement benefits will automatically be enrolled in a savings plan under a bill Gov. Jerry Brown signed Thursday.

The new law requires employers who do not provide pensions or retirement savings plans for their workers to enroll employees in the state plan — putting 3 percent of their wages into an account — unless the employee opts out.

The California Secure Choice Retirement Savings Trust would invest those contributions in low-risk and long-term investments on behalf

of the workers, who could increase or decrease how much they set aside at any time. The bill says the state and employers are not liable if savings plans lose money in a bad market or due to a poor investment.

The new law seeks to help Californians prepare for their senior years. A Pew Charitable Trusts report this year found nearly half of private-sector employees in California do not have a retirement plan through their employer. In major cities like Los Angeles, 58 percent of full-time workers do not have a work-sponsored retirement plan, while 44 percent of workers in San Francisco do not have a retirement plan.

“This is a step forward, and it’s also something very important in today’s age of spend now and worry about it later,” Brown said before signing the bill at the Capitol. “This is save now and prepare for later.”

The Secure Choice board is expected to adopt a final plan next year and workers could begin seeing payroll deductions in 2018. Once enrolled, contributions would automatically increase by one percentage point each year until reaching an 8 percent cap — unless changed by the employee.

When the employee retires, they could take all of their money out of the plan or convert it into monthly income.

The bill’s author, Senate President Pro Tem Kevin de León, D-Los Angeles, said too many workers are forced to retire only after they can no longer physically work.

“This bill is about personal responsibility,” de León said. “It’s about offering retirement savings opportunities to hardworking Californians so they can build savings over their lifetimes and retire with dignity.”

Opponents of the bill questioned whether the state should take on another retirement obligation when California already has billions in unfunded pension liabilities for state workers and teachers.

The financial services industry lobbied against the bill, saying a state-run plan would hurt companies that offer retirement savings accounts to people who don’t have them through their employer.

Although the law shields the state from bailing out the fund, critics in the financial industry said the state could face political pressure to shore up the new retirement savings plan if investments take a hit.

One critic, Paul Schott Stevens, president of the trade group Investment Company Institute, wrote in a letter to Brown that there is a “very high likelihood” taxpayers and workers will bear “substantial unforeseen costs” from the program. All investments are subject to market fluctuations and potential losses and during those losses the state will be faced with whether to reduce workers account balances or bail out the program, Stevens wrote.

“In other words, California taxpayers may well need to come to the rescue of the program,” Stevens wrote.

Critics also questioned whether low-wage workers can afford to set aside 3 percent of their paycheck when they already are struggling to pay for food and housing.

Supporters said the plan will help low- and middle-income workers who risk living in poverty once they retire. The plans would follow workers if they change jobs so that they can continue to build their retirement savings.

The state treasurer’s office estimates it will cost the state up to $134 million over the next several years to run the plan. Treasurer John Chiang, who is a member of the Secure Choice board, said the plan will be a model for taking care of workers.

“This will have a substantial impact on the opportunities of younger generations,” Chiang said. “This is the most significant development since the enactment of Social Security.”