Update on California Secure Choice

April 2, 2018 gtutt44 597 comments

CalSavers is Under Development

The most ambitious push to expand retirement security since the passage of Social Security in the 1930s became a reality on September 29, 2016 when Governor Jerry Brown signed Senate Bill 1234. The CalSavers Board, chaired by Treasurer John Chiang, is in the midst of developing and implementing the CalSavers retirement program. The Board anticipates the Program will open with a soft launch in summer or autumn of 2018 and officially open for statewide enrollment in early-2019.

Once CalSavers is fully operational, employers with 5 or more employees that don’t already provide a retirement plan will be required to either begin to offer a retirement plan of their choosing (no employer match necessary) or provide their employees access to CalSavers:
• Employers with more than 100 employees will need to offer a retirement plan or provide access to CalSavers within 12 months after the Program is open for enrollment; Employers with more than 50 employees will need to offer a retirement plan or provide access to CalSavers within 24 months after the Program is open for enrollment; and
• Employers with more than 5 employees will need to offer a retirement plan or provide access to CalSavers within 36 months after the Program is open for enrollment.

Employer Alert: The employer requirement will not go into effect for at least two years. Late 2019 is likely to be the earliest that large employers that do not offer a retirement plan to their employees will be required to provide access to CalSavers. The requirement will be phased in over a three-year period as outlined above. Any information to the contrary is wrong. Please contact our office if you are told something different so we can correct the source by emailing securechoice@sto.ca.gov.


To promote greater retirement savings for California’s private-sector workers who currently lack access to employer-sponsored retirement plans by providing access to a voluntary, low-risk, low-cost, portable retirement savings plan that enables direct payroll contributions into a personal Individual Retirement Account (IRA) managed by a private-sector financial firm overseen by the CalSavers Board.

CalSavers Goal

To create a workplace retirement savings plan that is:

Safe, Simple, Portable
To find out more about types of plans call 909-656-4885

so next on our agenda is an update on the California secure choice program from the treasurer’s office and we’re honored to have none other than our own colleague and State Treasurer John Chung making our presentation today welcome John thanks Anna in the to stand for this opportunity to give you an update on the California secure choice retirement savings plan to give you a sense this as this is an effort originated by state Senate President Pro time Kevin de Leon in 2012 as many of us who were here earlier remember that Kevin had approached many of the members to try to push a program that contemplated actually the use of CalPERS in providing support so he moved on a legislative front they created a nine-member board so I am the chair of the board our controller Betty yes also serves on the board in a later program they are slide I will share the other members of the board this is a state initiative and there’s actually a growing movement throughout the United States as alluded to by professor Stevens earlier today there are five states that have enacted legislation California Illinois Massachusetts most recently joined by Oregon and the state of Washington there are 20 states that are undergoing or reviewing proposals to push for a retirement type of initiative so the you see the influence happening on Washington DC and then Tom briefly alluded to the actions the president and the secretary took yesterday i’ll go into more detail a little bit later in this in this discussion so in regards to the california retirement landscape next so am i pushing this which button do i push to go forward oh here it is lower income ok so on this next slide to give you a sense of the composition so also alluded to in professor Stevens comments if you look at the top quartile of retirees only a very small percentage of them actually depend on Social Security for a huge chunk of their retirement savings however if you drop down to the median 75% depend on Social Security for half the retirement income that obviously creates a concern about the long-term stability for their finances when you go back to the historical framework where you look at people’s retire employer-based retirement savings Social Security savings and their own savings so you have a stool or multiple stools that are missing so the objective of secure choice was to make sure that those who lacked an employer-based retirement savings program in fact had one in place and that’s what we’re working on research demonstrates that the most effective way to do this is to make sure they’re that there is a employer-based plan available and that there would be automatic contributions some of the focus group work that we try to do to make this more favorable among the participants we otherwise would know it is automatic payroll deductions the employers actually like it better when you call it contributions and so that’s part of the framework by which we are moving forward so we want to design this plan so it encourages more general participation and in its most effective fashion so let’s go to the next slide and talking about the people who would be able to participate under secure choice so there would be about 6.3 million people that have been identified that could participate under California secure retired choice Pia ask the question earlier about composition for the various program so under the research that was done here aside from secure choice in the state of California we’re looking at about seventy one percent of Latinos who have no access to a retirement program so obviously when you look at the demographic challenges for this state that is something that we need to take very seriously and work aggressively to address but within the secure choice universe the the people who would qualify or the people that would be targeted identified for additional participation Latinos would make up forty seven percent White’s thirty-four percent african-americans four percent Asians thirteen percent and other two per set further going down and looking at the composition we know it’s women people of color they tend to be young as pointed out of the slide fifty percent are aged 36 or younger there’s small employee employee they work for small employers and they have rather modest incomes next in regards to Kevin’s legislation SB 1234 when you look at why you don’t have the savings that have been identified in the presentation offered this morning we wanted to look at the behavioral economics and behavioral finance to try to combat that so what we would do is we would have mandatory participation by the employers if they employed five or more employees who don’t have the plan what we wanted to do is we want to make sure that there was automatic enrollment in the program oftentimes when you opt in people don’t participate so we wanted to make this a program where they would be automatically enrolled they would they would have the choice to opt out as you recognize the changing workforce the changing nature of employment we wanted to make sure that the program is portable we always are concerned about CalPERS about making sure that the plan benefits with that we provide and the cost associated with our low-cost so we want to make sure it’s a low cost and low risk in regards to low risk the group that we had hired to do the market feasibility study to look at an analysis framework did its first focus group and those of lower-income who could potentially participate we’re very very concerned about loss of capital and so they were exploring different ideas and different plans as to at the beginning maybe first one to five years putting them in a plan where you wouldn’t see incredible volatility that they wouldn’t experience tremendous capital loss at the outset so that they would be more comfortable participating in this particular particular plan in addition in regards to the political concerns that the Senate President Pro Tem and others experience early on we wanted to address some of those concerns and continue to address some of those concerns so in regards to the employers participation we wanted to make sure that they understood and the legislation legislation dictates this that there is no application of ERISA and so the employers would have no ERISA liability they’re not sub they’re not responsible for the selection of the particular funds that would people would be invested in and they’re not responsible for the investment decisions of the employees themselves next slide so the components of the work that’s required I briefly alluded to it it’s a market analysis and feasibility study there I I mentioned earlier for your moments ago about the what’s required in the legislation so the IRA IRA arrangements offered must have meet the federal standards and regards to income tax treatment at the current moment the we have the feasibility team looking at seven different types of plants we hope to win a whit two three eventually one of the issues that are as impacted is if you give the employees too many choices it confuses people right it’s just not only the this universe its most people they don’t participate because they face the challenges of identifying which fun they want to invest in incredibly daunting so we want to reduce that particular concern we want to make sure that the the board gets a sense and that they provide the studies and recommendations to legislature as the legislation was designed and to make sure it could get over its legislative hurdle we required that we go back after we had passed the threshold qualification tests we go back provide a what we identified through our market studies our feasibility analysis provide the recommendations but the legislature ultimately would have to provide authorization legislation to make sure that it goes forward in regards to the next particular step this is a little bit different than Illinois I think they’re going to follow the same track but it doesn’t require them to go back to the legislature but we have very close conversations with the other parties on this particular issue Jacob was it JJ has the taxes you’ve been resolved yet Telstra think now Thea because it’s still currently under design as I pointed out we’re looking at seven seven different options and so will when we come back and we win oh and we go before the IRS will look at probably something like a private letter ruling to address that issue any other questions on that particular line okay I mentioned earlier the composition the board so I mentioned Betty and I the governor gets three Public Appointments he also appoint a small business representative the President Pro Tem has an investment representative and the speaker has a employees representative so and that’s Yvonne okay the fundraising component so as I mentioned was passed in 2012 the first year 2013 was basically spent trying to raise the money for granted a great job when he was working for Bill Lockyer it’s they raised about a million dollars for the project as highlighted on that particular slide SIU AARP CT CTA Arnold foundation pew California Endowment and somebody else ford foundation provided the funding for for this program one of the legislative requirements is that it has to be self-sustaining so the question is what does self-sustaining mean so the meat it’s been interpreted by the board as meaning no state contributions but we don’t know if you can they can at the early stages provide a state loan and then we would pay them back later but then the administrative costs and other costs would principally if not all be borne by the entity itself and so that’s part of the component of the feasibility studies that’s required this year we’ve identified the contracts for the people who are doing the market analysis and the legal work so K&L Gates is doing our tax work and the ERISA work to see if we can fall without or within the safe harbor of ERISA and then overture which is a component of other subcontractors is doing the market analysis study and some of the work that I referenced earlier earlier this year the speaker and I went to meet with Secretary of Labor Perez Nancy Pelosi senator boxer and white house office of intergovernmental affairs and council of economic advisers to discuss the legal questions and program implications of secure choice so they were generally incredibly favorable especially the elected representatives they understand the demographics the economic challenges that face Californians the labor secretary was incredibly supportive but there are strong legal questions so at the end of the meeting with the Secretary of Labor the Solicitor General the legal counsel what was agreed to is that we would frame the questions what was of California’s particular interests and we were just going to have continuing dialogue as to whether if you require a employer to make a employee deduction and the automatic contribution could that provision trigger ERISA application or could it fall outside of ERISA application or fall within the safe harbor so that we could move forward with secure choice as I stated earlier if ERISA applies then the we fail to meet the tests under the legislation that was passed in 22 2012 so it is a significant concern okay and so the other components of this stage so we are doing the study approach I mentioned we had to do a market analysis so we’re going to look at basically try to identify the demand for this program we’re going to look at the both the employees and the employers and what they’re interested in we’re going to look at the program how do we best fashion the program so that people will be interested in participating the programs and in regards to the elements of those programs where the relative strengths and weaknesses we will look at the conduct a feasibility study to see what is both practically and financially feasible as I mentioned it has to be a self-sustaining program in regards to the tests now so we’re doing a listening tour so we’re out reaching to the California general public we had met earlier with the employers so we’re just going up up and down the state so if any of you want to participate you have people like Richard Costigan recommended meeting with people and so we strongly encourage that we wanted to make sure that we get the full bayan of the employer community we met recently with the asset building community in San Francisco we’re going to continue to meet with both the employers one of the things and others we want to look at the investment policies next month and then in September the Aspen Institute is going to put together a series of meetings or a couple of meetings focus on investment products and behavioral economics so you are certainly encouraged to participate if it’s of a great interest to you obviously even though this doesn’t fit within this board spectrum we’re all cared we all care about retirement security in California we all work on certain subsets and so the subsets are healthier we all do much better so this is what the board identified in regards to concerns top two concerns and i’ll just go very quickly as ease and efficiency of administration and sustainability of this effort and 2016 and beyond i mentioned yesterday that the president made a public pronouncement Tom alluded yesterday he recognizes that there are retirement security issues in this country also stated that he recognizes that there’s incredible innovation taking place throughout the state so the important news is that he put into charge of the department of labor secretary that they come up with proposed plans or proposed rules that the states would be able to follow now it’s a it’s a major advancement it’s hopeful at least we know that we’re going to have some rules it doesn’t necessarily match in regards to the timing of secure choice the security legislation what we wanted to do was we wanted to complete our market study and feasibility analysis by Dan this year come up with a proposal of which we would offer to the legislature by the end of this year but not knowing what the federal rules are going to be so that whilst all the matching of the time timeframes but the good news is at least we have some news we can provide active state participation and if the if the federal rules comport to with what we’re trying to do it in here in California obviously you can move very quickly so let’s hope for good news and we can all drive to a better place for more people in the state of California 39 I went to MIT it over will penalize you later any questions for John go yeah well first of all John I that this is excellent work this is really important to have this thing really happened at the end of the day assuming and I think the assumptions are the greatest options I like the idea of getting down to three choices my father grew up in the jewelry business and he always said never show a custom more than three items at a time because you’ll confuse them so you know three to four is probably the right number and it gets a good strategy I think that it would be I would think it would be helpful as we continue through this process because we need additional legislation ultimately to authorize this that I don’t know how much by in there is right now from all the local chambers of commerce up and down this state but it seems to me that that’s a group that needs to really have a great understanding of the details of this and the parameters that really make this not a burden on business but an opportunity for business so i would suggest chambers of commerce Rotary clubs up and down the state those people are influential and need to have a good understanding of this as it goes forward yeah thank you Bill and I fully concur with that sentiment so our first meeting as I alluded to was with the Small Business Association up in Sacramento but we certainly want to take it statewide so if all of you would please reach out to your small business contacts and have them either tell Christina grant Eric or Ruth Ruth is specifically charged with the external relationship partnerships that we’re trying to build that would certainly advance the cause Thank You Dana yeah I was just curious um is there any tax deductions or anything associated with this so the we’re both exploring both pre pre tax post-test income programs the and so once we get to the final design or the end of the final choices then we’ll bring that to the Internal Revenue Service but an employer-employee or pardon these so it would be the it would be employees right now right the probe the program as it’s designed right there are employee contributions no I yeah this would be wonderful and I also think it’s good that it’s out of the ERISA to make it less complicated right yeah yeah hopefully it’s that was the big as I mentioned by political issue because the employers didn’t want want the additional responsibility right application of over so cross with secure choice so coming more from the private sector that’s a huge win Theresa Russa so my only question is and I’ve been to a million of these secure choice board meetings but I don’t remember it being addressed so if we find out that it become it falls under ERISA because we want to do auto deduct then are we going to change that then and approach it from that way so the the Senate President Pro Tem those are the early objections from the financial community and some summoned of some business representatives saw obviously that would renew that set of negotiations and discussions it is easier if we meet the original threshold under this legislation without having a recitation that’s why we were working so hard to try to design a program that fell either within ERISA safe harbor or falling out of the exception you would you would raise you would bring back the original objections to this idea if you had a reallocation I’m sorry would that mean then that the secure choice board would determine to negotiate that or would they just then go to know auto deduct because that’s the only thing that would make it fall under ERISA right is the auto deduct yeah I don’t want to speak for the eighth board members I’m sure we would have negotiation to know we would also go back to the principal author and see what allocate what track he want he would want to follow okay I was just curious thanks sure well I just want to I think this is such an important effort to really make progress towards retirement security for all Americans and all Californians at least and it seems like it’s gaining momentum nationwide as well which is really encouraging my question for you is around it’s so with this apply both to for-profit and not-for-profit organizations yes so I in are you reaching out to the not-for-profit community very actively okay terrific Thank You Betty um thank you what and John just thank you for your continued leadership on this I think your presence and that of the protons back in Washington really did help push the move the ball forward and also to the staff I just want to say with the focus groups that you’ve been doing throughout the state it’s actually been very instructive with respect to just the varying levels of understanding about what retirement even is and so to begin to have those conversations really on the ground has been I think a great first step and hope that that continues because we just have a lot of work to do with just the general public and if you continue those I really would encourage board members to try to attend some of them they’re they’re quite instructive yeah I think that’s a great idea Betty and thank you thank you for your leadership on this issue I thought a couple of the interesting facts the the low income potential participants actually like the fact and some of them were wanted us to increase the percentage withheld through the automatic contribution so you’re looking at numbers actually we were targeting three percent but four five six percent but what was very also important to them is that they had the ability to withdraw those funds which doesn’t help in the long term but obviously they experience a lot of economic uncertainties and for their security they wanted to have those funds immediately available so we have to make sure that we devise something that encourages their long-term participation but recognizes their their emotion their emotional concerns Henry thank you yeah it’s wonderful work John very good and I was just wondering there’s a retirement system that’s referred to as pars and when I was with LA Unified we set up that program for those employees that will work in less than four hours a day there was not eligible for pers to create a retirement system so we work with labor to set that up and so maybe some lessons learned from that I don’t know if you had an opportunity to reach out to that group but we did set up a program like that in LA Unified years ago thank you yell I’ll have Christina I follow up with you to get contact information see none else let’s give John round of applause thank you sir you

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