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California is requiring firms to offer retirement plans for workers. N.J.

and Pa. are still pondering it.

by Margot Roosevelt, Los Angeles Times,

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?

Related stories

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, (+)

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can help.
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In the Golden State, 61 percent of private-sector workers have no access to a pension or
401(k), up from 49 percent 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 that would make the state create 25

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:

What do employers have to do?

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.

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Employers with more than 100 workers have until June 30, 2020, to comply. ⛓
Employers with more than 50 employees have until June 30, 2021. Those with five or
more employees must enroll by June 30, 2022.

“From beginning to end, this process generally takes about 30 minutes; many
employers complete it in 15 minutes or less,” the CalSavers website says.

Then employers must remit employee payroll contributions to CalSavers each pay
period.

What does CalSavers offer employers?

Unlike private market retirement plans offered by financial institutions, which can
have high fees, CalSavers is free for employers.

And because CalSavers is sponsored by the state, not the employer, the employer is not
vulnerable to lawsuits related to the program.

Employers don’t have to worry about choosing mutual funds. CalSavers takes
responsibility for that.

"We take care of all the interaction with employees about their accounts,” Selenski
said. “We’ve made the employer experience as seamless and simple as possible.”

Unlike a private market plan, employers aren’t allowed to match contributions.

What does CalSavers offer workers?

Once an employer registers, workers are automatically enrolled in a post-tax Roth

individual retirement account unless they opt out. A pretax IRA will be available later
this year.

Workers can save up to the federal annual maximum of $6,000 for those under age 50
and $7,000 for those 50 or older — the same as for any IRA.

Five percent of a worker’s paycheck is automatically deducted, increasing by 1

percentage point a year to 8 percent. But workers are free at any time to change the
amount or opt out altogether.

“We are sensitive to the fact that many people work two or three jobs to put food on the
table,” Selenski said. “But even if people contribute as little as 1 percent, that adds up
over time with the magic of compound interest.”

Workers can take their IRA with them whenever they change jobs.

Why is CalSavers necessary?

In theory, workers can go to a financial institution and open their own IRAs. But few
do so. Fees, a required minimum balance, and the complexity of figuring out how to
invest the money can make the process daunting.

“Research shows that people are 15 times more likely to save for retirement if they have (+)

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the tools to do so through their employer,” Selenski said.

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Over the last year, a pilot CalSavers program enrolled 50 businesses — from a well-
paying architectural firm to lower-paying catering and janitorial companies — and
found that only 22.5 percent of their workers opted out of automatic paycheck
deductions.

How is the money invested?

Under the automatic settings, a worker’s first $1,000 in contributions is placed in a

low-risk money market fund with the rest invested in a target-date fund, which holds
different mixes of stocks, bonds, and other investment based on the expected
retirement date.

A sustainable investment fund, which accounts for environmental, social, and

governance factors, is available in addition to a core bond fund and a global equity
fund.

At the outset of the program, investment fees will be 0.825 percent to 0.95 percent of
assets, depending on the investment option, but are expected to shrink as the program
grows.

CalSavers is overseen by a nine-member public board chaired by the state treasurer.

Retirement provider Ascensus, based in Dresher, Pa., will administer the program.
Boston-based State Street Global Advisors is the manager of four funds, and Newton
Investment Management, based in London, administers the sustainable investment
fund.

What about the self-employed or gig workers?

Beginning in September, workers who are independent contractors, called 1099

workers after the IRS form they use to pay taxes, may enroll in CalSavers individually.

“They will go to our website, sign up, and link their bank accounts to a CalSavers
account,” Selenski said.

Staff reporter Erin Arvedlund contributed reporting.

Margot Roosevelt, Los Angeles Times

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Josh Boak, AP Economics Writer

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