California may soon become one of the first states to implement its own retirement savings program for workers without 401(k)s or pensions. Dubbed the Secure Choice Retirement Savings Program, the initiative has recently been promoted by state legislator Keven de Leon, an advocate for lower and middle income retirement security.
The program would automatically deduct 3 percent of pay from workers at companies with at least five employees and no pensions or 401(k)s. These funds would then be pooled and controlled by state-chosen professional investment managers, and participants would receive a modest 3 percent return. At retirement, workers would convert their contributed funds to annuities, which would provide a guaranteed lifelong income stream.
A voluntary but automatic opt-in program, the initiative is primarily aimed at lower income workers who've saved little to nothing for retirement, and whose employers don't offer retirement plans or financial advice of their own. While it can't completely take the place of personal savings, it would act as a non-volatile supplement to Social Security payouts. It might also ease taxpayer burdens in the future, as a private insurance policy would underwrite the plan.
While the Secure Choice Program has come under fire from the financial industry—and although similar bills have failed at the federal level – many advisers are praising it and other state-level initiatives. "I think it's a fantastic idea," says Ashley Murphy, CFP and founder of California-based Arete Wealth Strategists. "For the majority earning under $46,000 per year, they'd be largely dependent on Social Security, anyway."
