Obama wants to help California create more retirement-savings accounts
President Obama on Monday threw his weight behind California’s bid to provide more workers with retirement savings accounts.
California passed a law three years ago to set up a state-run program offering a retirement savings plan for about 6.3 million private-sector workers who do not have access to 401(k) programs or similar plans from their employers.
A few other states, including Illinois, Oregon and Connecticut, are pursuing similar plans.
But the plans must clear certain hurdles before they can be enacted, including getting exemptions from the federal Employee Retirement Income Security Act (ERISA) that governs retirement savings plans in private industry.
Obama said his administration would try to clear that obstacle.
“I’ve called on the Department of Labor and [Labor Secretary] Tom Perez to propose a set of rules by the end of the year to provide a clear path forward for states to create retirement savings programs,” Obama said during a White House conference on aging.
“We want to do everything we can to encourage more states to take this step,” he said. “We’ve got to make it easier for people to save for retirement.”
Under the California plan, written by state Sen. Kevin de Leon (D-Los Angeles), eligible workers would be automatically enrolled and have about 3% of their wages automatically withheld for contributions unless they opted out.
The plan, called the California Secure Choice Retirement Savings Program, would apply to businesses with five or more employees that do not offer an employer-sponsored plan.
The goal is to provide workers with an added retirement benefit beyond Social Security and Medicare.
De Leon praised Obama’s directive, saying in a statement that it “removes the most significant barrier to state action across the country.”
The California plan would be run by a nine-member board chaired by the state treasurer. It’s intended to be self-sustaining, with neither the state nor employers liable for the plan’s performance or administration.
The question of liability initially was a key sticking point for some opponents of the program.
“Our concern was that the employers would pick up the fiduciary liability,” Scott Hauge, president of the trade group Small Business California, said Monday. The group is now neutral on the law.
Perez wrote in a blog post Monday that about one-third of U.S. workers lack access to a retirement plan at work and that, although they can save on their own with an individual retirement account, “only a tiny fraction do so.”
The guidelines his agency will develop will “offer pathways for states to adopt retirement savings programs that are consistent with federal law,” Perez wrote.
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