Staterun retirement plan reports large jump in assets, optout rate KATHLEEN PENDER
CalSavers — the staterun retirement program for privatesector workers — revealed Thursday that employee assets in the plan have more than tripled since early June, but employees are also opting out at a sharply higher rate.
The program, under legal attack from a taxpayerrights group aided by the U.S. Department of Justice, began a pilot program in January and opened to all eligible employers July 1. Eventually, every California employer that has five or more employees in the state and doesn’t offer its own retirement plan will have to register for CalSavers, upload their employee roster and forward payroll deductions for participating workers. They cannot contribute to employee accounts.
Eligible employers with more than 100 employees will have until June 30 to register. Em
ployers with more than 50 employees must register by the middle of next year, and those with five or more employees have until June 30, 2022.
This week, for the first time, the program started sending notices to employers who will be required to register. Employers with fewer than five employees in California, or who offer their own plan, cannot join. However, starting this week their employees can join by linking their bank account to the program at www.cal savers.com; so can selfemployed individuals and gig workers.
Once an employer registers, its employees are automatically enrolled and will have 5% of their paycheck sent to a Roth IRA in their name, unless they choose a different savings rate or opt out altogether.
There were 230 employers registered as of Sept. 30 (up from 61 in early June when it was still in pilot phase). Of those registered, 153 have uploaded a roster and 78 have started payroll deductions.
The number of eligible employees at companies that had registered and uploaded their rosters as of Sept. 30 was 6,275, according to numbers provided by CalSavers.
About 34% of those employees have enrolled but not had their first payroll deduction, 36% have funded an account (average balance $317) and 30% opted out initially or within the first few months. That effective optout rate is up from 22.7% in early June.
“We were expecting” the optout rate to increase, said Katie Selenski, the program’s executive director. The optout rates for staterun plans in Oregon and Illinois, which are older and administered by the same company as CalSavers, “are settling at 31% to 33%. I think that’s what we can expect,” she said.
In the past 30 days, the average contribution rate was 4.96% of pay and the average monthly contribution about $102.
Companies that have registered already are “early adopters” who heard about the program and joined before the deadline.
“We are at a turning point this week. We are sending out our first round of notices,” to companies with five or more employees. “That’s really the next chapter of our development.”
Meanwhile, the program is defending a lawsuit filed in May 2018 by the Howard Jarvis Taxpayers Association in federal court in Sacramento seeking to block CalSavers on grounds it violates the federal Employee Retirement Income Security Act. It also says the program, originally called Secure Choice, exposes taxpayers, businesses and private sector employees to unnecessary costs and risks.
In July 2018, CalSavers filed a motion to dismiss the complaint.
In March of this year, Judge Morrison England dismissed the Jarvis suit, but gave the association one chance to file an amended complaint, “because of the importance of this case,” even though he thought it would be “futile.”
The association filed an amended complaint, which CalSavers moved to dismiss.
On Sept. 13, the U.S. Department of Justice filed a “statement of interest” in the case, agreeing with the Jarvis association that CalSavers is preempted by the federal retirement law.
CalSavers will submit a response to the department’s statement next week.
“We remain confident in the court’s prior ruling in favor of CalSavers,” Selenski said.
Whichever way England rules, both sides are almost certain to appeal. Social Security bump: In other retirement news, the Social Security Administration announced Thursday that people receiving Social Security or Supplemental Security Income benefits will get a 1.6% boost in their monthly payments next year. That’s less than the 2.8% bump they got this year and the 2% increase they got in 2018.
A retiree with the average monthly benefit of $1,471 in 2019 will get an extra $23.54 a month next year. Seniors who have Medicare Part B premiums deducted from their Social Security payments won’t know what their final check will be until Medicare announces those premiums for 2020 later this year.
Based on the average wage increase, the maximum amount of annual earnings subject to the Social Security tax will increase to $137,700 next year from $132,900 this year.