A historic bill is making its way through California’s legislature, one that could increase the retirement options available to around 7 million employees. The California Secure Choice Retirement Savings plan will extend a retirement option to those employed at small businesses which don’t offer a 401(k) option. In a nutshell, the bill will require these small employers to automatically enroll workers into an IRA. This stands to open another option to Irvine individuals planning for retirement, but who were previously without an employer option.
A number of states are attempting similar legislation, although the details of the initiatives may vary. The details of California’s Secure Choice plan, too, are still to be finalized. Here are a few preliminary points about the plan as it currently stands:
- Employees will be auto-enrolled by employers, but will have the opportunity to opt out if they choose.
- There will be a default contribution level, likely 3%, which will increase incrementally and automatically over time.
- A state board will oversee the plan, but a majority of the administrative burden will go to employers.
- It’s tentatively slated for a 2017 launch, with a gradual rollout, which will start with smaller employers.
On a first look, the development seems to be a positive legislative step was taken to address the disparity of retirement, which can be a challenge. Will it, however, be the saving grace that the millions without retirement savings are hoping for?
As it stands, though, this single positive step, although most needed, will not automatically secure a comfortable retirement for those engaging in the plan. The big benefit of the plan, that the employer defaults to enrolling workers, will certainly make a big difference; a survey by the Employee Benefit Research Institute suggested that 90% of workers who are offered a workplace retirement plan save for retirement, compared to only 20% of those without a work-sponsored option.
Starting the savings process is just the beginning, however. Especially if the default saving amount at the beginning is just 3%, proper monitoring and management of the plan will be needed to allow the initially small savings investment to grow into a healthy retirement fund, and most will need more for retirement than just what can be saved by the plan. It will be interesting to see how the details of the plan unfold, but I am guessing that adequate, personalized information will need to be sought elsewhere.
At the end of the day, the plan is a welcome advancement, and at the least, the legislation will bring the discussion of expanding retirement options to the attention of both the media, and individuals who need to focus on saving. While it may not be a one-stop solution, it’s definitely another option. If you’re planning for retirement and in the Irvine area, consider enlisting the help of a professional who can give you the personal attention you need: give us a call at Miramontes Capital.
Wang, Penelope. “How California Is Pioneering a New Retirement Savings Plan.” Money Magazine. Time.com/money. Sept. 1, 2016.