CalSavers, California’s automatically enrolled, state-run retirement plan meant to help over seven million Californians without access to a workplace retirement, officially launched Monday.
California claims to be the first state in the country to enact legislation establishing a state-run automatic enrollment Individual Retirement Account (IRA) program in 2012, and follows Oregon and Illinois in implementation.
CalSavers will be one of the largest U.S. retirement programs to date.
The program, which brings a retirement savings option to employees who don’t currently have one through their employer, is supposedly simple to operate and has no cost to taxpayers.
The worsening retirement savings problem
CalSavers notes there 55 million Americans who are currently “on their own” when it comes to saving for retirement, and nearly half of California workers on a trajectory to retire into economic hardship (which it defines as below twice the federal poverty rate).
“With California’s size and diversity, this pioneering program represents a major milestone—for California and the entire nation,” California State Treasurer Fiona Ma said in a statement. “Creating CalSavers solidifies our position as a leader in growing the national movement to help all Americans retire with dignity.”
People are 15 times more likely to save for retirement if they have the tools to do so through their employer.
However, an estimated two-hundred-fifty thousand to three hundred thousand employers in California do not offer a retirement savings program, for various reasons. The administrative responsibilities, fiduciary liability, and additional costs that come with providing an employer-sponsored plan are often cited as roadblocks.
“CalSavers addresses all three of these challenges head-on: it’s easy to facilitate, employers have no fiduciary liability, and there are no fees for employers. Employers are only responsible for providing us with their employee roster and then remitting employee payroll contributions each pay period,” CalSavers Executive Director Katie Selenski added. “We take care of all the communication and interaction with employees about their accounts. We’ve designed this groundbreaking program to make the employer experience as seamless and simple as possible.”
How it works
Beginning July 1, 2019, eligible employers of all sizes can register for CalSavers at www.calsavers.com.
By law, every California employer with five or more California-based employees who doesn’t already offer an employer-sponsored retirement plan will eventually have to begin offering a retirement savings program, either through the private market or by facilitating employee access to CalSavers.
Employers with more than 100 employees who do not already offer a retirement plan will have until June 30, 2020 to register. Employers with more than 50 employees will be required to register by June 30, 2021, and those with five or more employees by June 30, 2022.
Eligible employers of any size are encouraged to register at any time starting now, regardless of their registration deadline.
Once enrolled, employees can choose their own contribution rate, up to the federal annual maximum of $6,000 for those under age 50 and $7,000 for those over age 50—the same as any IRA—with deductions automatically made from each paycheck.
While participating employees will be automatically enrolled at a savings rate of five percent per paycheck, individuals can choose their own savings rate and investments, or opt out at any time.
Participant fees are low and expected to shrink further as the program grows to scale, according to CalSavers.
Accounts stay with employees, even if they change jobs, and self-employed and “gig” workers will be allowed in starting September 1, 2019.
With more than 20 years serving financial markets, John Sullivan is the former editor-in-chief of Investment Advisor magazine and retirement editor of ThinkAdvisor.com. Sullivan is also the former editor of Boomer Market Advisor and Bank Advisor magazines, and has a background in the insurance and investment industries in addition to his journalism roots.
