Many workers work for small firms who cannot afford to offer a retirement plan. This leaves these workers with limited resources to meet living expenses upon retirement. California is considering creating a plan, Secure Choice Retirement Program. It provides approximately eight million workers with a new means to retire.
The Problem
Over 75% of the state’s low and moderate income retirees rely on Social Security, leading to hardship. With each generation on track to retire poorer than the last, the strain on taxpayer funded health and human services will undermine the long-term stability of the state.
- Researchers at UC Berkeley say, nearly half of the state workers are on track to retire with incomes below 200 percent of the poverty level ($22,000 a year), a widely accepted threshold for serious hardship.
- Additionally, at least 62% of retirees rely on Social Security for more than half their income.
- The average monthly Social Security check is $1,328.
About 66% work for small businesses with less than 100 employees dominated by minorities. According to AARP (American Association of Retired Persons):
- 66% are workers of color
- 50% are Latino
- 60% are woman
,Those affected are are older and at the low end of the pay scale:
- According to the GAO (Government Accounting Office), 50% of households aged 55 or older have no retirement savings.
- 57% of current retirees are woman and makeup 70% of retirees in the bottom 25% of income, according to UC Berkeley.
- Workers with access to a workplace plan are fifteen times more likely to save for retirement concludes AARP.
Employee Plan Features of Secure Choice
- It will be easy for workers to use the plan allows for auto payroll pay in of 3% of salary into a personal retirement plan, with the option to opt out or change pay ins at any time. It offers a bump of pay in up to 8% of pay with worker’s ability to stop or change the rate.
- The savings would be secure. For up to the first three years of the program, The state would establish managed accounts invested in U.S. Treasuries, or other low-risk investment, and develop options which address risk and smoothing of market losses and gains. Worker fees would be low. The state and its outside advisors, would have a fiduciary duty to the participants of the program.
- Changing jobs would not be a problem. Workers can pay in to their own account throughout their working life.
Employer Benefits
- Firms would be able to offer an added benefit. Firms would give workers access to an IRA account with limited duties and no fiduciary responsibility to the firm .
- It would appeal to small firms because it applies to firms with 5 or more workers, who do not offer a retirement plan. These firms will be required to offer an firm sponsored retirement plan, or provide their workers with access to the state’s Secure Choice Retirement Program.
- Mandated firms would be exempt from ERISA
Effect on Taxpayers:
- There would be no cost to taxpayers. The program would be self-funding through worker fees. The state would have no liability for the program funding or performance.
- By enabling workers to save for retirement, they may be less reliant on taxpayer funded public services when they reach retirement age.
This bill is a good start for workers of small firms to plan for their future. For other ways to plan for your retirement years, contact Simpson Capital. 
