Assembly approves bill establishing state-run retirement accounts for all

A savings-for-all plan passed the Assembly on Thursday that, if signed into law, will automatically enroll many employees into a state-run individual retirement system.

Secure Choice, if implemented, would require employers of five or more people to automatically enroll employees into portable retirement accounts, with an opt-out clause for the individual.

Proponents of the measure say that while everyone already has the option of investing in a wide variety of retirement accounts, they aren’t — the approximately 7 million people in the state who don’t have employer-based retirement accounts need to be nudged into planning for the future.

“This is a mechanism to get Californians to save for retirement,” Assemblyman Mike Gatto, D-Glendale, said on the floor Thursday, adding that while skeptical at first, he eventually asked himself why he hadn’t thought of the idea.

Others remained skeptical, with concerns over the risk to taxpayers if the market tanks and whether diligent contributors will end up subsidizing those who have not contributed much. 

“I applaud (Senate President Pro Tem Kevin de Leon) for authoring this bill … however, we have some real challenges in this bill,” said Assemblyman David Hadley, R-Torrance, who was a financial adviser prior to his election to the Assembly. “This bill has the makings of an epic problem.”

Gatto reiterated that the accounts are individualized with no risk to the state. Others have pointed out that the accounts will be built on low-risk investments like treasury bills and would lower the demand on Social Security — although critics have pointed that low-risk investments have a low return on investment, which could give account holders a false sense of security. 

The program, if signed into law, would be administered by a nine-member California Secure Choice Retirement Savings Investment Board, which is chaired by the state treasurer.

The measure heads back to the Senate next, where it sailed through earlier this year.