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How to make Secure Choice retirement plan work

State Senate President Pro Tem Kevin de León, D-Los Angeles, center, led the charge for the Secure Choice retirement program in the Legislature.
State Senate President Pro Tem Kevin de León, D-Los Angeles, center, led the charge for the Secure Choice retirement program in the Legislature. Associated Press file

Warren Buffett, who knows something about accumulating wealth, famously said, “Someone’s sitting in the shade today because someone planted a tree a long time ago.” In other words, if you want a comfortable retirement, start saving early.

While many Americans follow Buffett’s advice by participating in a 401(k) or similar employer-sponsored plan, a recent analysis by The Pew Charitable Trusts shows that 30 million full-time employees do not have access to any kind of employer-based retirement benefit – 3.9 million in California.

According to the study, only 51 percent of California employees have access to a workplace retirement plan, below the national average of 58 percent, and only 44 percent participate. Meanwhile, 10 percent of California seniors live in poverty, and the number of seniors is projected to nearly double by 2030.

In September, Gov. Jerry Brown signed the Secure Choice Retirement Savings Trust Act, championed by Senate President Pro Tem Kevin de León, state Treasurer John Chiang and other leaders. The law requires private-sector employers with five or more workers to enroll them in the Secure Choice program if they don’t offer retirement benefits.

On Thursday, Pew and the California Budget & Policy Center are convening a conference in Sacramento to discuss how the vision of Secure Choice – a safe and convenient retirement option that protects workers, businesses and taxpayers – can become a reality.

Secure Choice includes some safeguards for businesses and employees. Employers are not required to contribute matching funds and have no liability for administrative costs or investment losses. Employees can opt out of the program at any time, and can change the 3 percent default contribution, especially important for workers living paycheck to paycheck.

A major goal is making the program self-sufficient, so that the state avoids any potential liability for covering benefits. The law allows administrative fees of as much as 1 percent to be paid from plan assets. Policymakers and other stakeholders will be watching several key issues, including whether so many workers opt out that the fee falls short of covering costs. Data from other countries and from U.S. private-sector plans do not show higher-than-expected opt-outs, even among lower-income workers.

For employees, an important question is how many participants with low or moderate incomes will want to dip into their accounts in a financial emergency. When should such withdrawals be permitted? Should there be penalties for taking funds out early?

For employers, some of whom are skeptical, Secure Choice needs to strike a balance between the benefits to their workers and the new obligations on companies. Employers will be responsible for enrolling employees and possibly be the point of contact on contributions, investments and distributions.

In addition, California will be looking for any revised or additional regulation from the Trump administration regarding state-sponsored retirement programs like Secure Choice.

As these open questions indicate, passage of Secure Choice is only the first step. Making it a success will require the best ideas from all stakeholders and careful implementation.

Chris Hoene is executive director of the California Budget & Policy Center and can be contacted at choene@calbudgetcenter.org. John Scott directs the retirement savings project for The Pew Charitable Trusts and can be contacted at jscott@pewtrusts.org.

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