California Assembly passes bill for private worker retirement plan

SAN FRANCISCO (Reuters) - A bill to create a state-run retirement plan for roughly 7 million private workers in California advanced through the state Assembly on Thursday in a victory for legislators concerned that a lack of savings leads to poverty for many retirees.

The bill would launch the California Secure Choice Retirement Plan, a program to cover California workers who do not receive a company-sponsored retirement, such as a pension or 401(k) plan.

Workers employed at companies with five or more employees would be automatically enrolled, but they may opt out if they choose not to participate.

“Without a secure plan, retirement for millions of hard-working Californians will remain a mirage, always on the horizon but never materializing,” California Senate President Kevin de Leon said in a statement on Thursday.

“And their Golden Years - a time to enjoy the fruits of lifelong toil - will be fraught with financial uncertainty, poverty, and government dependency,” he said.

The vote comes on the same day the U.S. Department of Labor finalized rules aimed at making it easier for states to set up retirement savings plans for workers. Eight states have already passed legislation creating their own retirement savings arrangements.

Every day in California, 1,000 people reach the retirement age of 65, according to the governor’s office. About half of those will retire into poverty because they do not have access to retirement options, according to the University of California Berkeley Center for Labor Research and Education.

Opponents of the California state-run retirement plan said that while well meaning, the bill itself is flawed.

“Rather than creating a new type of retirement account, the state should just auto-enroll those workers in IRAs,” said Kyle Hauptman, executive director of the Main Street Growth Project, a small business and pro-growth advocacy group.

“The IRA already exists, works well, provides more investor choice and is easier to use for those who may someday leave California. This is a classic case of government trying to do what the private sector already does well,” he said.

The state bill, which passed by a vote of 47-23, now moves back to the Senate for a concurrence vote before heading to Governor Jerry Brown’s desk.