Posted on 14 September 2012
By Mark Miller
Is California about to set the country’s retirement saving system on its ear?
The state has often set trends for the country in areas ranging from the environment to food and popular culture. Now, California is moving toward launching an innovative new approach to retirement saving that addresses two key problems facing Americans: the lack of workplace pension programs among small businesses and the structural shortcomings of 401(k) plans.
The state’s legislature recently passed a bill laying the groundwork for the California Secure Choice Retirement Savings Program (SCP) – a government-sponsored retirement-savings vehicle that would be offered to employees of every California company that doesn’t have a workplace retirement plan.
Employees would contribute through payroll deductions to SCP accounts; the plan’s investments would be professionally managed, and would be geared to produce conservative returns tied to Treasury bond rates. At retirement, the individual account would be converted to a pension-style annuity.
The plan is still a long way from implementation. It faces opposition from the California business community on concerns about the cost of implementing payroll deduction systems and potential legal liability issues for employers.
The mere fact that California lawmakers decided to push forward with the plan at all underscores growing worry in policy circles about the nation’s looming retirement savings gap and the need to do something about it.
Learn more in my column today at Reuters Money.
Related: Editorial supporting the California plan by The New York Times.