State-Run Retirement Plan OK'd in California
SACRAMENTO, Calif. (CN) — Millions of California workers lacking access to pension and retirement plans received a boost Thursday after Gov. Jerry Brown signed a bill that greenlights a state-sponsored savings plan for private employees.
Hoping to encourage and spur retirement planning for nearly 7 million Californians relying largely on social security, the California Secure Choice Retirement Program will create savings plans for workers whose employers don't offer 401(k) or other retirement options.
Structured like a traditional 401(k), workers will be able to take the state-sponsored retirement plan with them to new jobs but face penalties for withdrawing before retirement. While similar to California's public-employee pension plan, it will not be guaranteed by state taxpayers.
Brown and Senate Bill 1234 author Kevin De Leon, D-Los Angeles, hope the bill will give small businesses the ability to compete with larger employers that can offer employees more attractive retirement benefits. De Leon first introduced the idea in 2008 and said he helped raised more than $1 million in research funds.
Invoking Vice President Joe Biden, De Leon proclaimed "today is a big F'n day!" drawing laughs from the crowd and media assembled in the Governor's Capitol office. He called the plan the first of its kind and the biggest expansion of retirement security since the New Deal in the 1930s.
"This is a big deal, this is a big day for all of us in California and for the United States," De Leon said.
Brown said the plan represents a shift from the mindset of "instant gratification" pushed by advertisers hoping to encourage and continue poor consumer spending habits.
"This is a very auspicious day," Brown said during a signing ceremony. "This is a step forward and it's also something very important in today's age of spend now and worry about it later; this is save now and prepare for later."
States like Washington, Oregon and Connecticut have studied or passed legislation on state-sponsored plans, but California is prepared to become the first to implement a statewide plan. The program will be phased in incrementally with a 2018 launch date.
California employers not offering retirement plans will be forced to auto-enroll their employees in a state-provided program. Workers will have the chance to opt out of the state program, just like a 401(k) plan.
The state treasurer's office pegs the plan's implementation costs at $134 million. The initial funds are likely to come from a general fund loan.
California State Treasurer John Chiang is one of the architects of the retirement plan and worked closely with De Leon to secure the bill's passage. The measure cleared the Legislature largely along party lines and was backed by a powerful group of labor unions, including the Service Employees International Union and the California Labor Federation, which consists of 1,200 unions.
Opponents argued that the program will be hard to manage and is simply another bureaucratic hurdle for small business owners. Republicans noted during SB 1234 hearings that California's massive state employee system already faces a crisis, with billions in unfunded pension liabilities.
The plan took shape in 2012 when Brown approved a bill establishing the California Secure Choice Retirement Savings Investment Board. Brown was persuaded to sign the bill after changes were included giving him five appointments to the nine-member board.
The board was tasked with proposing and studying a state-sponsored plan, and in March it voted to recommend the plan signed by Brown.
Chiang, who sits on the board and is a 2018 Democratic gubernatorial candidate, said the retirement plan is the "most significant step toward providing Californians with a dignified retirement since the establishment of Social Security in 1935."