Private-sector retirement savings plan proposed for California
California is facing a tidal wave of “discarded seniors” who will retire with little or no financial support other than Social Security, a state senator warned.
One out of two middle-income Californians could retire at or near poverty conditions, said Sen. Kevin De Leon (D-Los Angeles).
To partially head off that impending disaster, De Leon on Thursday unveiled legislation that would create a retirement savings plan for an estimated 7 million private sector workers who don’t have job-related retirement plans.
The savings plan is designed to supplement Social Security retirement benefits.
The bill, SB 1234, would create a savings plan, known as a cash-balance account, that would allow workers to put 3% of their pay into an investment pool that would be managed by a state board.
Workers would be automatically enrolled in the plan unless they ask to not participate.
Employers also could voluntarily contribute to their employees’ accounts but, otherwise, would face no costs other than for administering the deductions from employees’ paychecks.
The savings plan could generate as much as $6.6 billion in potential investments in its first year of operation. The investments and the management of the portfolio would be overseen by a new body, the Golden State Retirement Savings Investment Board.
The board would be required to invest only in conservative instruments, such as U.S. government Treasury bonds, De Leon said.
The bill, so far, is being supported by the AARP and various senior-citizen organizations.
Some small-business owners who can’t afford to provide 401(k)-type retirement plans for their employees also back De Leon bill.
“My employees aren’t in a position to actively seek out ways to set up a retirement plan,” said Andrew Blaskovich, the owner of a restaurant and a pair of food trucks called Drewski’s Hot Rod Kitchen in Sacramento.
“This makes it easy for them and helps me take care of them in a simple yet responsible way.”
De Leon’s bill is similar in concept to legislation he carried a few years ago that failed to pass the Legislature. This year’s version, he said, has been modified to address some of the opposition to the earlier bill.