Gov. Jerry Brown signed two bills Sept. 28 that lay the groundwork for a first-ever state-sponsored program that would require private employers to offer a retirement savings option to workers.
S.B. 1234 by Sen. Kevin De Leon (D) creates a nine-member appointed board to study whether it is legally and financially possible to launch the California Secure Choice Retirement Savings Investment Program. S.B. 923 by De Leon allows for the set-up and design of the program but requires the governing board to come back to the Legislature for approval before the program can begin operation.
According to De Leon, the savings accounts would be like individual retirement accounts, providing a retirement savings mechanism for millions of private sector workers who do not have employer-sponsored pensions or retirement benefits. The accounts would be equivalent to IRAs that are insured.
The program’s governing board will be chaired by the state treasurer and include the state controller; the state director of finance; and members appointed by the governor, Senate president, and Assembly speaker.
Viability of the program hinges on whether the IRA-like accounts qualify for federal pre-tax treatment under the tax code and whether the accounts are not considered pensions that would fall under the Employee Retirement Income Security Act. The governing board will ask the Internal Revenue Service and the Labor Department to issue determinations on those questions.
If the retirement program is eventually allowed to go forward through enactment of another bill, employers of five or more people would be required to offer the savings option to workers. Employees would be able to opt out of the program, but if they do
participate, they would contribute 3 percent of their annual earnings into the fund.
S.B. 1234 and S.B. 923 do not apply to employees covered by collective bargaining agreements that provide pension plans; railroad employees; or employees of federal, state, or local government agencies.
The governing board would hire outside firms to manage the investments, which would have a guaranteed rate of return tied to 30-year Treasury bonds.
Both bills had the support of labor groups, including the Service Employees International Union. Last-minute amendments to the bills led to a neutral position from groups that had opposed the measure, including the California Chamber of Commerce. 10.8.2012