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California has launched a state retirement savings program for residents who aren’t offered a retirement plan at work, joining a handful of other states who have already done the same or plan to in the not-so-distant future.

Starting today, employers in the most popular state in the union with five or more workers who don’t offer a retirement plan can sign up for the CalSavers Retirement Savings Program, enabling employees to enroll.

Their employees will be automatically enrolled at a 5% contribution rate but they can raise the rate up to a maximum of $6,000 per year for those under 50 and up $7,000 for those 50 and older – the same maximums set by the federal government for IRA accounts — or choose to opt out. The accounts will remain with the employees even if they change jobs and those work freelance or on a contract basis in the so-called gig economy can sign up beginning Sept. 1.

The state is encouraging employers who don’t offer a retirement plan to register for the program but they are not required to sign up for at least another year, according to the following schedule:

  • more than 100 employees: June 30, 2020
  • more than 50 employees: June 30, 2021
  • five or more employees: June 30, 2022

Employers pay no fees to sign up and have no fiduciary liability but they are responsible for providing their employee roster to CalSavers and for remitting payroll contributions each period, according to CalSavers Executive Director Katie Selenski.

The state program will take care of all communications and interactions with employees about their accounts. “We’ve designed this groundbreaking program to make the employer experience as seamless and simple as possible,” said Selenski.

“With California’s size and diversity, this pioneering program represents a major milestone — for California and the entire nation,” said State Treasurer Fiona Ma in a a statement.

According to her office, an estimated 250,000 to 300,000 employers in California don’t offer a retirement savings program. Half of the private sector employees in the state, or millions of workers, have no assets saved for retirement, according to a recent UC Berkeley study.

The CalSavers program, which began as a pilot program in November 2018 with four mutual fund investment options, has many more investment options now: 11 target date funds, one money market fund, two global equity funds and one core bond fund — all from State Street  — and a sustainable balanced fund from Newton Investment Management, a BNY Mellon company. Ascensus is the program administrator.

In addition to California, only two states currently offer retirement plans for employees not offered one at work that employers will be required to implement: Oregon and Illinois. Several more are in the process of setting up such mandatory programs including Connecticut, Maryland and New Jersey. Meanwhile, New York, Massachusetts, Vermont and Washington state have either enacted or are in the process of enacting some type of voluntary retirement plan to cover employees who have no plan at work, according to the Georgetown University Center for Retirement Initiatives.

The use of these plans could potentially be affected by federal legislation pending in the Senate. The Setting Every Community Up for Retirement Enhancement Act (SECURE Act), which has already passed the House, would expand the ability of small employers to join together in  multi-employer retirement plans.

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