PD Editorial: Creating retirement plans for those without

California may soon become the first state in the nation to ensure nearly every worker has a retirement savings account - or at least the opportunity to be enrolled in one.

The state Assembly on Thursday approved SB 1234, the California Secure Choice Retirement Plan, a plan that would be mandatory for any company, with at least five employees that doesn’t already offer a retirement savings plan.

A final vote remains in the state Senate before the bill can be sent to governor’s desk. But it’s our hope that when that occurs, Jerry Brown will give it his signature. This is an important step toward ensuring a better quality of life in retirement for many Californians, especially those who spent their working years in low- and middle-income jobs.

Under the legislation, eligible workers would be automatically enrolled and have 3 percent of their salaries automatically deducted. The amount deducted could gradually increase to 8 percent. The funds would be managed by professional investors, and workers would be able to keep their IRAs when they change jobs. Some 6.8 million Californians are expected to be covered by the program.

So what’s the problem that Secure Choice is fixing? According to a recent GoBankingRates survey, one in three Americans say they have set aside nothing for retirement beyond Social Security. Zero. And 23 percent say they have less than $10,000 in savings. With the rapid decline of private-sector companies that offer defined benefit plans (pensions) and the number of businesses that have no defined contribution plan like a 401(k), many workers have not had the means or opportunity to create a retirement savings account. According to the National Institute on Retirement Savings, nearly 45 percent of private-sector workers are not offered a retirement savings account.

This is one reason why one in five California seniors now live in poverty, according to the Census Bureau’s Supplemental Poverty Measure. This is the worst rate of any state in the country.

And the situation is expected to get worse. For those Americans ages 55 and above, 28 percent say they have no retirement savings whatsoever.

Given that many Californians are living paycheck to paycheck, saving for retirement is not always an option. That’s why under Secure Choice, workers would be able to opt out entirely at any time, although, as with an individual retirement account, they could face a tax penalty if they decide to withdraw the money from these accounts before retirement.

Wall Street interests are putting pressure on the governor to veto this legislation for the potential risks involved in getting involved in personal investments. But given the safeguards included in this legislation and the movement away from any guarantees on investments returns, the risks, particularly for taxpayers, are more fictional than fiscal.

It’s true that some workers will simply opt out. But it’s our guess that many others will stick it out, and see how quickly even small but steady investments in retirement accounts can grow. And with it, their quality of life in retirement may grow as well.