California Secure Choice: Helping Californians Save for The Future

By John Chiang

California State Treasurer

We’ve heard over and over again the concerns for Social Security and the challenges facing retirement pension funds. And who is not aware that the global economy has undergone a seismic shift? This is our new reality. These are our challenges.

There are workers today who are threatened with not only being left behind but who will almost surely suffer the slight of poverty and being forced to rely on government and charitable handouts in their post-employment years.

Unless we do something now.

Workers find themselves without the pensions and benefits their parents enjoyed. That is partly due to the fact we’re changing jobs more frequently as a steady drumbeat of disruptive technologies transforms the world of commerce and our day-to-day lives.

Much of the innovation driving the structural change to our economy originated here in California – and we are proud to be the acknowledged epicenter of profound cultural and technological change.

So, being grand-scale innovators, it is only fitting that California is now blazing the way forward to meet the retirement needs of workers whose lives are being shaped by this new economy. Today about 7.4 million Californians are deprived of access to the automatic retirement savings plans many Americans enjoy through their places of employment.

My office is at the forefront nationally in reimagining the way private-sector workers invest in retirement savings accounts. I want to help ensure their post-employment incomes are sufficient to ward off an impoverished retirement. Daily life should focus on which grandchildren to visit, not on how to pay the rent. This new way to save for retirement is called Secure Choice. At this moment, Secure Choice could be helping 6.8 million Californians save for retirement.

In 2012 California became the first state to successfully enact legislation authorizing a feasibility study of the Secure Choice program, available to private-sector employees who are not currently offered a retirement savings plan through their employment.

A number of other states, including Connecticut, Illinois, Iowa, North Dakota, Minnesota, Oregon and Wisconsin, are moving on a similar course. [See map.] President Barack Obama, meanwhile, has inserted a federal version of Secure Choice into his proposed budget now before Congress.

 

All across the country people are coalescing behind the idea and recognizing the need to take action.

Statistics show that nationally 45% of working-age households have nothing saved for retirement. While across all working age households the median retirement savings amount is only $3,000.

Most people think that Social Security provides a stable source of income in retirement. Yet in California the average Social Security benefit is only $1,281 per month. It’s simply not enough. We can do better.

How we do better is by passage of Senate Bill 1234 – the California Secure Choice Savings Program.

This is an example of how we take big innovative ideas and make them work. And be assured, others throughout the nation will be watching closely to see if we succeed.

The concept was introduced into the California Legislature in 2012 by current Senate President Pro Tem Kevin De Leon. The bill called for a study to be conducted by the Secure Choice Board, which I chair, and our consultants concluded that such a retirement savings plan is legally and financially feasible. There will be little to no cost to employers.

 

The board held two public hearings in early March and will vote on sending a recommendation to lawmakers on March 28. It will then be up to the Legislature and governor to make Secure Choice a reality.

 

According to UC Berkeley, three out of 10 seniors in California do not have enough income to cover their basic needs. The median personal income of California seniors is less than $22,000. And less than half of senior-headed households in the state have retirement income other than Social Security.

 

To avoid future workers sharing that fate, the Secure Choice retirement savings program is aimed at workers ages 25 to 44, more than half of whom have projected retirement incomes insufficient to satisfy basic needs. Making such a savings plan automatically available is important. The Employee Benefit Research Institute has found that participating in automatic payroll deduction plans makes a person 15 times more likely to save for their senior years.

 

Secure Choice could dramatically change that picture. Secure Choice, if approved, would:

 

• Require employers to either offer their own plan or make automatic payroll deductions into a Secure Choice account for each of their employees.
• Provide low-risk, low-fee savings accounts that follow the worker from job to job.
• Not obligate employers to match any worker contributions, nor assume any legal liabilities or fiduciary responsibilities.
• Allow employees to “opt out” by electing not to participate in the savings plan.

 

That the push for Secure Choice has been as successful as it has been to date is testimony to the efforts of AARP members. You are pivotal on this issue. Your voices and experience have given impetus to the gathering national momentum. I know, because I have personally heard from many of you. Nearly 400 AARP members from across California participated in my recent Tele Town Hall.

I find it heartwarming and encouraging that AARP members are thinking about how to improve the retirement outlook for others, especially your children and future retirees who are struggling to navigate this dynamic and uncharted economy. It’s clear that AARP Baby Boomers stand to make a significant difference in the lives of Generation Xers, who will soon become the next generation of retirees.

For them, a lifetime of contributing to a Secure Choice account could ensure that they and many more Californians escape an impoverished retirement.

 

I also want to note the support Secure Choice has drawn from such groups as Young Invincibles and the Small Business Majority.

 

We can wring our hands about changes buffeting the world economy and disruptive new technologies that have shattered the traditional relationship between employers and employees. We can grouse about the gap between the haves and have-nots. We might even debate stripping dignified retirements from those who still have them.

 

But this does little to counter what is clearly an imminent threat to the American dream and California’s way of life. The looming crisis of millions of our citizens retiring into poverty or having to work until the grave demands more of us.

 

Secure Choice is an essential part of a solution to the retirement security quandary. We are in a position to help millions of Californians to save so they do not have to face the choice later between paying the rent or buying groceries.

 

At its signing, President Franklin Delano Roosevelt called Social Security “a measure of protection to the average citizen and his family against poverty-ridden old age.”

 

Those words ring true even today. It is a moral imperative that we continue to offer our fellow Californians some measure of protection. We must approve a Secure Choice law this year and get it up and working as quickly as can be done responsibly.

 

Secure Choice is the beginning of a New Deal for California.

 

John Chiang was elected in 2014 as California state treasurer. As the state’s banker, he is responsible for trillions of dollars in transactions every year. The treasurer sells California’s bonds, invests its money, and manages its cash. In addition, the treasurer manages financing authorities that help improve schools and transportation and that provide jobs, quality health care, more affordable housing, and a cleaner environment for those who call California home.

Mr. Chiang’s public service career has spanned almost two decades. Prior to his election as state treasurer, he served eight years as the California state controller. He served on the California Board of Equalization from 1999 to 2006.

He has led efforts to reform the state’s public pension systems; helped local governments navigate difficult economic times; protected California’s natural resources; and launched financial and tax assistance seminars for California’s working families, seniors, small businesses, and nonprofit organizations.

Click here to read “Building California’s Future Begins Today,” Treasurer Chiang’s report on his efforts to ensure greater government transparency, create affordable housing, improve the state’s infrastructure, and other initiatives.