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Kevin de León, a California state senator, likes to tell the story of a 74-year-old San Diego woman who takes two buses to the wealthy enclave of Coronado to clean houses several days a week. Despite a lifetime of hard work, her Social Security check does not cover her living expenses, he says, forcing her to put off retirement.
That woman, his aunt, motivated de León to push for an automatic retirement program for California workers whose employers do not offer 401(k)s or other retirement plans.
“She’s worked all her life,” he said. “She hasn’t asked the state or the federal government for a single penny in terms of any type of assistance, and she’s not had the opportunity to build up any assets over the course of time.”
After years of trying, de León, a Democrat representing the Los Angeles area, was able to muscle a bill through the Democratic-run Legislature creating a statewide dedicated retirement account for private-sector workers. Democratic Gov. Jerry Brown signed the bill into law on Oct. 1.
De León’s measure, the first of its kind in the country, has attracted attention from lawmakers in other states and in Congress and has turned the first-term senator into a rising star. Retirement savings have taken a hit in the recession, just as baby boomers are getting ready to leave the workforce.
President Barack Obama has included proposals in his budget requests to enroll workers with no retirement coverage into automatic individual retirement accounts, but the idea has gone nowhere in Congress.
Sen. Tom Harkin, D-Iowa, who has made the retirement savings “crisis” a pet cause, is working on a bill modeled closely on de León’s proposal that would automatically deduct money from workers’ paychecks if they work for employers who do not offer traditional pensions or defined contribution plans. Harkin said last month that he is crafting the bill with Sen. Michael B. Enzi, R-Wyo.
Lawmakers in Maryland, Oregon, Washington, Connecticut and elsewhere have introduced similar legislation in the past few months.
The California law requires employers with at least five employees and who do not offer their own retirement plans to automatically deduct 3 percent of workers’ salaries for the program. Employers do not have to match the deductions, which are pooled into an account overseen by a state board. Workers would get an annuity upon retirement. Ultimately, however, the employee would bear the risk for the plan, although de León said he hopes the plan will be able to buy some form of insurance to protect the principal and guarantee a steady return.