California Ready to Embark on Ambitious Employee Retirement Savings Program
October 17, 2016 by Andrew Baker
Signed by the Governor on September 29, SB 1234 creates the new California Secure Choice Retirement Savings Program, an opt-out, 401(k)-type savings plan for almost all California private-sector employees not already eligible for a retirement program.
The essence of the bill is the creation of an automatic, pre-tax payroll deduction from employee wages to be invested in a state-run savings plan. Employers with 5 or more employees that do not already offer retirement savings plans must make the program available to their employees. Employees may opt out of the program. Employers are not obligated to, but may, make matching contributions to the plan.
The program’s governing board, the California Secure Choice Retirement Savings Investment Board, will be created January 1, 2017, but the program benefits will not become available for some time thereafter, probably 2018. The law requires employers with at least 100 employees to make the program available to their employees within one year of the date the Board opens the program for enrollment; those with at least 50 employees must follow suit within 2 years of that date; and employers with 5 or more employees have 3 years to roll out the program to their employees.
The initial, automatic deduction will be set by the Board at a rate between 2% and 4% of wages. The law authorizes the Board to implement annual increases of up to 1% in the automatic-deduction rate, up to a cap of 8%. Employees are free to elect a different rate.
Employee savings accounts move with the employee from job-to-job. The accounts will be similar to 401(k) plans: Contributions are made with pre-tax dollars, there is a penalty for early withdrawal, and the value of the account fluctuates with the market. The state will not guarantee any benefits.
Excluded from the program are employees participating in Taft-Hartley pension plans, employees covered by the Railway Labor Act, employees already eligible for an employer-sponsored retirement savings program, and public-sector employees.
Many of the details of the program are to be worked out by the Board once it convenes in 2017. The Board consists of 9 members: the state Treasurer, Director of Finance and Controller, one appointed by the Senate and one by the Assembly, and 4 appointed by the Governor.
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