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California Moves to Cover Workers With No Retirement Plan


This is a guest post by Sid Kirchheimer, who writes about consumer issues for AARP.

If you're among the millions of private-sector workers whose employers do not provide a retirement savings plan, it may help to be living in California. Gov. Jerry Brown (D) has signed into law a bill that opens the way for the nation's first state-administered, private retirement savings program to cover the uncovered.

Senate Bill 1234 aims to change, at least in the Golden State, this sad fact: many Americans have no retirement savings at all. Among boomers who do, a recent AARP study found that about two-thirds report that their balances have declined in the last three years or so.

AARP helped rally support for the bill, sponsored by Senator Kevin de León (D-Los Angeles). The measure would provide a retirement savings option for 6.3 million Californians without an employer-sponsored retirement plan.

In an op-ed commentary in USA Today, AARP Executive Vice President Nancy LeaMond says the plan "could be the most significant expansion of retirement income security since Social Security."

"By passing this measure, Gov. Jerry Brown and the California Legislature have taken a significant step toward addressing the retirement savings crisis, and should be applauded," she writes. "We encourage other states to follow in California's footsteps, empowering people to achieve a more independent and financially secure retirement."

The New York Times has also offered praise for the plan, calling it "a model for addressing a national problem."

USA Today opposed the measure, saying a better approach would be to encourage more companies to set up 401(k)s and IRAs and increase incentives, or even mandates, for workers to contribute to one or both.

Meantime, California is probing the technical and legal hurdles of enacting a public-private partnership that would help California workers who have no employer-provided retirement plan divert some of their income to saving for the post-work future.

Enactment would require another vote by the state legislature, possibly next year. If the plan goes through, uncovered employees would be enrolled in the California Secure Choice Retirement Savings Program Trust, unless they opted out. A proposed 3 percent of their pay would be deducted and pooled into low-risk, moderate-growth investments such as 30-year Treasury bonds. Investment managers chosen by the state through a bidding process would manage the funds.

Accounts would be portable - if you left a job, you could take the account with you to another job.

Through private insurance and reserves, the plan calls for a guaranteed minimum return - expected to be modest but above the inflation rate - without requiring taxpayers to foot the bill for any bad investments.

Photo credit: Justin Brockie via

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