PD Editorial: Giving everyone a chance to save for retirement
A federal court this week tossed out a challenge to California's retirement savings system for workers whose employers don't provide them with a retirement plan. Despite the recent stock market turmoil, workers should jump at the opportunity to start saving for their golden years.
The program, called CalSavers, is still in its infancy. The state put the legal pieces in place just a few years ago. Participation is scheduled to ramp up this summer. Then, all companies with more than 100 employees that don't have a retirement plan need to implement systems that allow their employees to participate to CalSavers. Next year, the thresholds drops to companies with as few as 50 employees, and then to as few as five in 2022.
No one should confuse this program with the state Public Employee Retirement System. CalPERS is a pension program for government workers. It has all sorts of problems, not least that public sector unions and their Democratic allies in the Legislature have ensured that benefits are excessively generous. It's billions of dollars in the hole, and that almost certainly has gotten much worse during the recent stock market woes. Public employees deserve a pension system, but a much more realistically managed one.
CalSavers works like other retirement accounts. Workers contribute a percentage of their paycheck - about 5%, though individuals can decide to contribute more or less. That money goes into an individual investment account that will grow over time. When workers are ready to retire, they'll have something to supplement Social Security and other savings.
Participation is optional. Eligible workers start off enrolled, but anyone can opt out or opt back in at will. The account is portable in case workers change jobs or even move out of the state. Participants have a handful of investment options from which to choose.
The conservative Howard Jarvis Taxpayers Association challenged CalSavers by claiming it violates federal retirement law. The court twice dismissed that argument. Really, their argument feels more like a technicality on which to hang a lawsuit. Conservatives just don't like the idea of a state-run retirement program for private-sector workers.
The recent stock market nosedive notwithstanding, prudent investment over the long term remains the best way to build wealth. About half of California workers aged 25-64 don't have a retirement savings account, and the numbers get worse the further down the income ladder one looks. They'll have Social Security and nothing else in retirement. As most retirees can attest, Social Security doesn't go as far as people think. The retirement of so many workers without savings will become a social crisis for the state and the entire country.
The best thing to do is to start saving early. Even setting aside a small amount every month in a retirement account can blossom into a sizable nest egg down the road, thanks to compounding growth. It's never too late to start, though.
California's decision to give nearly every worker access to that opportunity will, assuming most take advantage of it, blunt the demand for social safety net spending over the long term and allow people to retire with enough money to enjoy it.
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