September 4, 2012 – The California State Senate last Friday approved a bill to establish a state-managed automatic enrollment retirement savings option for certain private sector workers. The bill was passed by the California Assembly earlier that day. At the time of this writing, it was undetermined whether the bill would be signed into law by Governor Jerry Brown.
Under the provisions of the bill, employers that do not sponsor either a retirement plan or an automatic enrollment payroll deduction IRA program, would be directed to withhold three (3) percent of employee pay—unless the employee elects otherwise—to be contributed to the new California Secure Choice Retirement Savings Program (CSCRSP). The law would take effect over a nine-month period with larger employers required to comply sooner than smaller employers. Noncompliant employers would be subject to tiered penalties of $250 to $500 per eligible employee, based on the period of noncompliance. The Board of Administration of the California Public Employees’ Retirement System would be charged with administering the funds in the CSCRSP trust.
Similar legislation has been proposed in other states, and the private sector retirement industry has been watching these legislative developments with both interest and concern.