Nicole Rice

State Design for Private Sector Retirement Plan Revealed

By Nicole Rice, Policy Director, Government Relations

Capitol Update, Feb. 19, 2016

California is one step closer to formulating a plan for a government-run private sector retirement program. Recommendations prepared by an independent consulting firm are under consideration by the California Secure Choice Retirement Savings Investment Board, the entity statutorily formed to consider the feasibility and viability of such a program and offer a design proposal for the State Legislature to approve.

Under the blueprint provided by Overture Financial of New York, employers with five or more California employees that do not offer some type of retirement plan would automatically enroll their workers into a state-sponsored Roth IRA, unless they opted out. Contributions would come directly from workers’ paychecks at a default rate of five percent of pay, escalating by one percentage point each year until reaching ten percent. Employers would not be required to provide a matching contribution. Suggestions for a default investment vehicle, pre-retirement withdrawals and participant fees were also provided.

Public hearings on the plan will be held on March 1 in Los Angeles and March 3 in Oakland from 2 pm to 5 pm. The Board will discuss and vote on the recommendations at its March 28 meeting in Sacramento.

It has been said that when implemented, this program will be a simple alternative for employers wishing to provide retirement security for their workers, without the liability and administrative burden that comes with offering more traditional pensions or 401(k) plans. While good intentioned and a noble goal, as always, the devil is in the details and CMTA is committed to ensuring this program works for California manufacturers and the 6 million residents who currently do not have retirement savings.

A copy of the Overture report can be found here: http://www.treasurer.ca.gov/scib/report.pdf.

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