(The writer is a Reuters columnist. The opinions expressed are
By Mark Miller
CHICAGO, Oct 6 The movement to require employers
to offer retirement plans to their workers just took a big leap
California Governor Jerry Brown signed legislation last week
launching the state's Secure Choice plan - a
government-sponsored retirement savings vehicle that would be
offered to employees of most companies that do not have their
own workplace retirement plan.
California is the seventh state to enact a plan, and it will
be the largest by far in the nation. The green light marks a
major expansion of government-sponsored retirement plan coverage
in the United States - the plan is expected to cover 1.6 million
workers in the first year alone; ultimately, 6.8 million will be
The states taking action are alarmed at the prospect of
large numbers of their citizens headed toward retirement with
little or no savings - in part because roughly half have no
access to a workplace retirement plan.
But California's move also could also give a major boost to
the Obama administration's efforts to expand coverage for
workers at the national level. Late last year, the
administration launched the myRA platform as a federally
sponsored starter IRA for workers just beginning to develop the
retirement savings habit. In August, the California legislature
agreed to add language to the legislation that adds myRA as an
option for consideration by the Secure Choice board.
The idea would be to use myRA for up to three years while
the state tackles the myriad challenges of launching its own
platform, said Dan Reeves, chief of staff for Kevin de León,
president pro tempore of the California State Senate, who
sponsored the California legislation.
A key task will be selection of a private sector financial
services firm to administer the accounts. A U.S. Treasury
department representative confirmed the department has been
talking with California about its possible use of myRA.
A partnership between California - the most populous state
in the nation - and the federal government would mark a huge
expansion of myRA, which currently has just 15,000 account
holders, according to the Treasury representative. California's
initial 1.6 million accounts are expected to accumulate more
than $3 billion in assets during the first year of operation,
expected to be 2018.
California Secure Choice will begin by enrolling workers at
companies with more than 100 employees, gradually phasing in
workers at smaller firms (those with more than five workers)
over a three- or four-year period. A total of 6.8 million
workers will be eligible - 55 percent of the state's
The plan will be an IRA - most likely a Roth. Employers are
not required to contribute; employees would contribute through
payroll deductions to Secure Choice accounts. The plan's
investments would be professionally managed, and geared to
produce conservative returns tied to Treasury bond rates. The
default contribution rate is expected to be 3 percent of wages.
The myRA platform could be used while California shops for a
private sector vendor to administer the program. When that
happens, myRA accounts would be transferred to the new platform,
which most likely will consist of target date fund investments.
California was the first state to investigate starting its
own mandatory retirement plan, passing a law in 2012 authorizing
study of the idea. It now joins Illinois, Maryland, Connecticut
and Oregon, which have already enacted similar IRA programs; two
other states (Washington state and New Jersey) have created
nonmandatory programs where workers can shop among plans in a
"California definitely marks a watershed moment, given its
size," said Sarah Mysiewicz Gill, senior legislative
representative for AARP, which has been a strong supporter of
state plans. The next big shoe to drop, she thinks, could be New
York state, where legislation is being considered both at the
state level and in New York City. A New York state plan would
add 3.6 million workers.
If the movement by states keeps gaining momentum, a tipping
point could be reached where opposition to a national mandatory
plan fades. Two key opponents withdrew their opposition to the
California plan this year - the American Council of Life
Insurers and the California Chamber of Commerce.
A California partnership with Treasury also would signify
growing federal-state cooperation. The Obama administration,
unable to get its own national auto-IRA past Republican
opponents in Congress, instead launched myRA as a workaround.
Essentially, it is a Roth IRA with payroll deduction
features. There are no fees, funds are invested conservatively
in government securities and principal is guaranteed by the
Treasury. Balances cannot exceed $15,000 - at that point,
accounts must be transferred to a private provider.
The administration also has embraced the state plans of
late. Most notably, the Department of Labor last year issued a
rule guiding states on how to create their plans without running
afoul of requirements of the Employee Retirement Income Security
But momentum is building for a national solution. A recent
report on retirement system reform by the Bipartisan Policy
Center (BPC) called for a new mandatory national Retirement
Security Plan targeting employers with fewer than 500 workers (reut.rs/2dtBPaH).
And some financial services leaders think that if enough states
pass their own plans, a critical mass will be attained and even
current opponents on Wall Street will support a national plan.
Action at the state level is good - but a national mandatory
plan is what we ultimately will need.
(Editing by Matthew Lewis)