The state of California will launch a massive new retirement program that could cover nearly seven million private-sector workers, under legislation signed by Governor Jerry Brown Thursday.
It’s like a state-run 401(K) for workers whose employers don’t already offer a plan. Once the program launches, they’ll be automatically enrolled, unless they opt out. They’ll have portions of their paychecks withheld pre-tax and put into a statewide retirement savings plan. A state board will manage the investment fund. Governor Jerry Brown called it a step forward.
Workers will have portions of their paychecks withheld pre-tax and put into a statewide retirement savings plan. A state board will manage the investment fund. Governor Jerry Brown called it a step forward.
"It’s also something very important in today’s age of spend now, worry about it later. This is save now, and prepare for later."
It’s not the first program of its kind—Illinois, Oregon, and Connecticut are some of the states with similar set-ups.
Nari Rhee with the UC Berkeley Labor Center consulted on the California program, after finding that nearly two-thirds of private workers in the state don’t have employer-sponsored retirement plans.
"We rely on voluntary employer-sponsored plans and voluntary employee participation for people to save in the long-term," says Rhee. "And the fact is that it all falls apart."
Financial industry trade groups and Republicans opposed the new law, arguing private firms should handle the investments, not a new, large state-run program.
Unlike with pensions, California won’t be on the hook for contributions. The state treasurer—another supporter—estimates it could cost up to $134 million to set up the program.