After passing the California State Senate in late May, private sector employees in the Golden State are one step closer to a low-cost, low-risk, and completely portable retirement savings option provided by the state.
Senate Bill 1234 would provide a retirement plan that sponsors say would complement Social Security income for low-income retirees. The bill assumes the retirement fund will have a guaranteed interest rate for participants, and would require all businesses with five or more employees enroll at staggered dates after enactment.
A safe and guaranteed retirement option for California workers is an important step toward financial security in retirement. 6.3 million private sector workers in California lack access to retirement benefits through their employer, in part due to high fees and complex choices. And despite the guarantee provided by Social Security benefits, far too many seniors still live at or below the poverty line. Listen to Senator Kevin de León explain CA Senate Bill 1234:
The legislation’s authors contend the program will be low-risk and self-sustaining, and would only be enacted if it meets certain criteria – tempering questions about potential state liability. Estimates show that if the bill were passed and the 6.3 million Californians without retirement benefits could enroll, over $6 billion would be invested in the first year alone.
Similar efforts are underway around the country, including here in Washington state. In 2010, Washington state Senator Eric Oemig and Representative Tina Orwall proposed similar legislation that would allow employees to opt-in to a state-authorized Washington Voluntary Account system, making retirement plans more accessible to employees. Under the most likely scenario, the state would contract with financial services firms to administer the accounts and manage the investments.
EOI is currently pursuing a proposal with the mayor of Seattle and Seattle City Council to determine how the city can encourage small businesses to offer retirement options to their employees. Currently, only 22% of small businesses offer retirement plans, compared to 68% of businesses with more than 500 employees.
Accessible, portable and reliable retirement savings options are critically important to ensuring all workers – particularly those in small business and with lower incomes – have the ability to live comfortably in retirement. Allowing all workers to save for their retirement will not only provide a boost in living standards, but will also increase economic activity now and in the future.
By EOI Intern Bill Dow