Saying it offers the promise of retirement security for millions of Californians, Gov. Jerry Brown signed sweeping legislation Thursday that creates a state-managed savings program for private-sector workers who lack one.
The California Secure Choice Retirement Savings Program will be the largest of its kind in the country. Phasing in over several years, the program could begin accepting its first contributions from workers at employers with 100 or more employees by 2018, officials said. Within a year, it would apply to all companies with five or more workers.
Brown, at a Capitol signing ceremony, called Senate Bill 1234 “very important in today’s age of spend now, worry about it later.”
“This is save now and prepare for later,” Brown told the bill’s supporters. “It is recognizing the fact that more and more people are getting old.”
Experts estimate that almost half of middle-income workers are at risk of falling into poverty when they retire. Monthly checks from the federal Social Security program increasingly fall short of covering seniors’ costs in retirement.
The Secure Choice program, supporters say, would take advantage of economies of scale to automatically put a share of workers’ wages into a retirement fund at low cost, unless they opt out. Contributions would start at 3 percent of a worker’s salary. While employers would be required to set up the plans to accept contributions from workers’ paychecks, they would not be required to contribute to the retirement funds.
Treasurer John Chiang, union leaders and others described SB 1234 as the broadest enhancement of retirement security since federal lawmakers approved Social Security amid the Great Depression of the 1930s.
“This is a big effing deal,” said Senate President Pro Tem Kevin de León, author of SB 1234, paraphrasing what Vice President Joe Biden told President Barack Obama in 2010 before he signed the federal Affordable Care Act.
State officials still have to hire staff and select a Secure Choice investment vehicle, among other items on the to-do list after Thursday’s bill takes effect Jan. 1. An option will be to initially piggyback on the federal MyRA program, a voluntary retirement account created by the Obama administration in 2014, and then solicit proposals for a state-run program.
Thursday’s bill folded in the results of a consultant’s study earlier this year on the viability of the Secure Choice proposal. That report followed lawmakers’ 2012 approval of legislation creating the Secure Choice board, with unions, foundations and others kicking in to pay $1 million in initial costs.
The latest bill passed the Legislature largely along party lines, with most Republican lawmakers opposed. Critics argued that Secure Choice poses unfair state competition to the financial planning industry and also will feed expectations that the state will step in and cover investment losses if workers’ savings decline during an economic downturn.
Employers also voiced concerns earlier this year that the bill could make them liable under federal retirement rules. Last month, though, the U.S. Department of Labor finalized regulations on state-managed retirement accounts meant to hold businesses harmless in collecting the Secure Choice contributions from workers.
Washington, Illinois and Oregon also are in the process of setting up state-managed plans.
“Our members helped bring Secure Choice from concept to reality, following through on our commitment to ensure every Californian has access to a dignified retirement,” said Yvonne Walker, president of SEIU Local 1000 and the chair of the Secure Choice board.