California State-Run Auto IRA Program Launched

California State Treasurer Fiona Ma and former State Senator Kevin de León announced the launch of CalSavers, a state retirement savings program that will give access to more than 7 million working Californians who currently lack a workplace plan.

SB 1234 created CalSavers and requires that all employers with five or more employees that don’t already offer a retirement plan to either begin offering a qualified plan from the private market or register for CalSavers in accordance with a series of staggered deadlines rolling out over the next three years. The registration deadline for employers with more than 100 employees is June 30, 2020; those with more than 50 to 100 employees must register by June 30, 2021; and employers with 5 to 50 employees must register by June 30, 2022. All eligible employers are encouraged to join at any time prior to their registration deadline.

According to the CalSavers website, employers are only responsible for submitting employees’ contributions to the state-run individual retirement account (IRA) program, adding new employees and removing employees that have left the company. CalSavers does not include any employer fees or employer match contributions.

The Department of Labor under President Barack Obama’s administration had provided a safe harbor from Employee Retirement Income Security Act (ERISA) pre-emption for such state-based retirement savings programs; however, Congress, under President Donald Trump’s administration, cancelled that safe harbor. Yet, states such as Illinois, Washington and Oregon have already implemented their programs.

Industry groups and retirement plan providers have expressed concern that state-run programs will create non-uniform and inconsistent regulations across states. Some do not think such programs will close the retirement savings gap for Americans.

However, preliminary data from the OregonSaves state automatic IRA program suggest that the majority of eligible workers are participating and that those participants are, by and large, remaining passive with respect to their contribution rate. At the time of an analysis from the Center for Retirement Research (CRR) at Boston College, 62% of eligible workers were participating, and 93% of contributing participants had not changed their default deferral rate of 5%.