July 28, 2014 SIGN IN | REGISTER

Dreaming of Retirement Savings, California Style

Courtesy Kevin de Leon
After years of trying, de León, left, was able to muscle a bill through the Legislature that created a statewide dedicated retirement account for private-sector workers.

Policy analysts and advocates have been eagerly watching the progress of the California measure. If it proves successful, they hope to see it replicated in other states and, ultimately, at the federal level.

“It’s very promising because the biggest problem is lack of coverage,” said Teresa Ghilarducci, an economist at the New School in New York. “It’s never been worse, and the decline is steady.”

Others, however, question whether the state is well equipped to manage billions of dollars of retirement money when its own public pension funds are underfunded by $165 billion. And there is also concern about employer liability. Even if employers are not responsible for investments or for matching funds, some could still find themselves targeted should the market crash and employees lose their savings.

“Employers are concerned about being sued,” said Aliya Wong, executive director of retirement policy at the U.S. Chamber of Commerce, which did not take a position on the California measure. “Even if [employers] are able to win the lawsuit, you’ve pretty much lost by the time they bring the lawsuit due to the cost of litigating, and it’s really hard to legislate against that.”

About 53 percent of all private-sector employers now offer some kind of retirement plan, Ghilarducci said, down from 61 percent in 2001. In California, only 47 percent of employers offered retirement coverage in 2010, down from 53 percent in 2000. The recession forced many employers to drop their plans, she said, but workers have also lost some of their bargaining power, making them less likely to demand a 401(k) or a pension.

Two-thirds of households say they have saved some money for their retirement, according to a survey by the Employee Benefits Research Institute, but only 45 percent say they take part in a workplace retirement program. And even if they have saved some money, many do not have anywhere near enough to keep them afloat in retirement. About half of the respondents in the survey said they had less than $10,000 in savings.

Such findings have scared policymakers and analysts who worry about a wave of destitute elderly people relying on Social Security just as the program is facing financial pressures.

“People run out of money when they get old,” said Harkin, who chairs the Senate Health, Education, Labor and Pensions Committee. “They see their living standards decline, they lean more and more on the social safety net, squeezing government cost again at all levels. So it comes back on taxpayers again. We need to do more to help American families cope with this looming crisis.”

The California program is still a year or two away from implementation. To pacify skeptical lawmakers and opposing lobbyists, de León agreed to raise money for a feasibility study that would assess whether the program could be self-sustaining. Once that study is completed, the state will also have to ask the Treasury and the Labor departments whether there are tax implications to the program and whether the program is subject to the 1974 Employee Retirement Income Security Act (PL 93-406), which imposes strict rules on employers who offer retirement plans.

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