A flurry of year-end legislative proposals at the federal level hasn’t stopped states from moving forward with their own plans to increase retirement savings plan access and coverage on behalf of their citizens, with California being the latest.
The Golden state launched its auto-IRA program, CalSavers (formerly Secure Choice) with events held in its major cities late in November. California is the third state to launch such a program and will be the largest program to date.
Chaired by State Treasurer John Chiang, the program aims to cover 7.5 million Californians who don’t have access to a retirement plan through their employer, which Chiang notes is “14 percent of the 55 million Americans who are currently ‘on their own’ when it comes to saving for retirement.”
Chiang and Katie Selenski, executive director of CalSavers, sat with 401(k) Specialist to discuss the programs genesis, differences from similar programs in other states, and what happens next.
Q: Why a state-sponsored retirement plan, and why now?
Chiang: We know that we have a growing retirement crisis in California and in the United States of America. The current market has failed dramatically to address the retirement needs of too many Californians and Americans. So, we’re very excited about the launch of the CalSavers program. We think this is going to be a game changer for many. It’s the most significant advancement in retirement efforts since Social Security was enacted.
Q: What was the demand like for this type of a program, and does it require a lot of education of the State’s part?
Chiang: It is an [education] effort, but what’s great about this is its automatic enrollment and it’s voluntary. If you have an automatic enrollment program it increases the likelihood by 15 times of people’s participation. We know that in the absence of that we’re looking at the younger generation between the ages of 25 to 44 that’s going to have twice the likelihood of retiring into poverty relative to those ages 45 to 64.
Q: What kind of benchmarks do you have in place for the near-term future to measure success?
Chiang: We think if we get growth in people’s retirement security participation that is going to be a dramatic success. We obviously care deeply about individuals and families. We also are concerned for people using the social safety net. Obviously, we want it available for those who are in need, but we also understand how strained it can be, especially during recessionary times.
Q: From an operational standpoint in developing the program, did you look to other states that have a plan in place.
Selenski: Yes, certainly we consult regularly at the staff level with my peers in Oregon and Illinois, and I know the treasurer obviously consults with his peers in the elected offices, and we are really proud that we were first with legislation in the country on this program. It actually works out really nicely that we’re coming in third on implementation because we’ve been able to really draw a lot of insights from the experiences in Oregon and Illinois. So we talk with them all the time.
Q: How does it differ from some of those other programs, and was there anything that stood out to you that was specific to the citizens in California that you needed to implement that other states did not?
Selenski: In terms of implementation and the design of the program, they’re very similar. The biggest difference, I think, is that threshold for the employer requirement. In California, our employer requirement is for five or more employees, phased in over a three-year period. In Oregon, it goes down to one or more, and in Illinois, it’s 25 or more. Otherwise, most of the elements are pretty similar. I think we have been more aggressive on the multilingual accessibility, reflecting our great diversity in the state of California. The board and the Treasurer have been huge leaders on that. So we’re going to make our materials available and the website is going to be available in 12 languages once we get to full rollout.
And ESG is another distinction.
Chiang: When you look at the subsequent successive generations, especially among those who are younger, they want to invest in financial products that reflect their values; a clean environment, being socially conscious, and some of the advancement in financial vehicles are starting to show price competitiveness. So we want to be listening to our partners, the nonprofit partners, AARP, they have membership that want to look to the future and they want to do good, so we are exploring ESG vehicles as one of the investment options for the participants.
Q: What’s next for the program? After the launch is there any kinds of phases that you’ll be going through in the near future?
Chiang: Yes, we’re doing the pilot program to try to identify any pressure points that are causing friction and inefficiencies that are not leaning towards optimal performance, fix those and then add more companies to the pilot as we move forward. We have a huge interest over 100 companies have expressed that they’re interested in participating in the pilot phase. We selected at the outset a diverse representation understanding that California is a dynamic economy, the world’s fifth largest, but there are big, medium and small companies throughout various regions of this state in different industries who have made significant contributions to California’s economy with a diverse workforce.
We wanted to get a better sense and understanding of the concerns and issues that touch those companies and make sure that we are sensitive and doing everything we can and demonstrating that we care so that this program goes full-bore, full-steam to achieve the success that’s needed for Californians.
Selenski: And Treasurer, you might want to mention its effect on gig workers and the gig economy.
Chiang: Yes. While the legal requirements have for companies at five or more employees, we understand the transformation that this economy is undergoing has been undergoing on for a period of time. So, you could have individual workers, especially those in the gig economy, participate in this program. We wanted to make sure that we left no worker behind.
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.
