Here's how California's new retirement plan can help employer comply with 2022 law
Are you a worker worried you won’t have enough money to retire? Are you an employer who doesn’t offer either a pension or a 401(k) to your workers? If so, CalSavers is aimed at you.
On July 1, California launched an ambitious state-sponsored retirement program for the private sector. All employers with five or more workers will be required to sign on if they don’t offer their employees a way to save and invest for retirement. As many as 300,000 businesses must comply over the next three years.
That will give about 7.5 million workers who have no access to a pension, 401(k), or other qualified retirement plan an easy way to deduct savings from their paychecks. And it will bypass often complex and costly setup procedures as well as the liability that has deterred many businesses from offering investment programs to their employees.
“When it comes to retirement income security, most working Californians are in trouble,” said Nari Rhee, director of the Retirement Security Program at University of California-Berkeley’s Center for Labor Research and Education. CalSavers, she said, can help.
In the Golden State, 61% of private-sector workers have no access to a pension or 401(k), up from 49% two decades ago, as businesses have cut back on benefits, a labor center study found.
Social Security, with a current average benefit of $1,461 a month, won’t meet basic needs for many in a state with skyrocketing housing and medical costs.
“People are worried they will have to work until they die,” said Katie Selenski, CalSavers’ executive director. “If our elderly are living in poverty, it is a moral problem, but also a fiscal problem. If they have to rely on public assistance, it drives up taxpayer costs.”
Pennsylvania legislators are circulating a draft bill for private companies to provide insurance. More than 2.1 million Pennsylvanians work for employers that do not offer retirement plans. Financially unprepared retirees will demand social services costing Pennsylvania an additional $14 billion between the years 2015 and 2030, a state retirement task force projects.
The commonwealth has the fifth-largest population over 65 in the U.S. The number of seniors in Pennsylvania — defined as people aged 65 to 74 — will increase by 270,000 by 2025, for a total of 1.55 million seniors in Pennsylvania.
“The auto IRA is a commonsense solution” to the savings crisis, said Pennsylvania Treasurer Joseph Torsella in March, and “has deep and bipartisan roots. Six other states have it, and 20 states are contemplating this in 2019. Over time, it will be financially self-sustaining. It won’t cost business owners one dime, or expose them to liability.”
New Jersey this year passed “portable” IRAs, or individual retirement accounts.
New Jersey Gov. Phil Murphy signed legislation on March 28 creating the state’s Secure Choice Savings Program to help workers whose employers don’t provide plans to establish retirement savings accounts.
New Jersey employers with more than 25 workers are mandated to enroll workers by March 28, 2021. Managing the fund will be the Secure Choice Savings Board, including the state treasurer, comptroller, and director of Office Management and Budget.
States with an automatic-IRA (auto-IRA) include California, Connecticut, Illinois, Maryland, and Oregon.
Here’s how CalSavers works:
Employers of any size can begin voluntarily signing up on CalSavers.com. Next year, mandatory compliance kicks in. Employers of fewer than five people are exempt, but all others who have not adopted a private market retirement plan must register and allow CalSavers to enroll their workers.