California Secure Choice Would Provide Retirement Security to Millions
By Treasurer John Chiang
The ability to retire with modest comfort and contentment has become an elusive dream for millions of Californians.
Many head into their supposed �golden years� with diminished incomes and little or no savings to pay for food, shelter, medical bills, and other basics. With only Social Security to live on, they face the prospect of toiling until they are sick, incapacitated or dead.
It is a frightening prospect for Guadalupe Leyva, 66, of Modesto. She�s worked boning chicken in a meat plant for more than three decades, earning just $11 an hour. Her hands are scarred from years of injuries and surgeries. But she can�t retire.
She is afraid to stop working because she can�t afford rent, food, and medical bills. She lamented, �My Social Security and a small retirement account will only help for a few years. I can�t retire this year, and I will have to see if next year is a possibility.�
While Guadalupe�s plight has become all too common, we can create a better future. We can make a positive change by adopting a new program called �Secure Choice.�
Secure Choice will provide a greater measure of retirement security for folks with no access to traditional pension benefits or employer-supported 401(k)s.
Secure Choice is aimed at workers, ages 25 to 44, more than half of whom have projected retirement incomes insufficient to satisfy basic needs. They are part of the millions of Californians working for employers who provide no retirement benefits at all.
Secure Choice is an effort to make more Californians more secure with little to no cost to either employers or taxpayers. It is an ambitious step that is part of a growing national movement � from Oregon, to Illinois, to the White House � aimed at protecting millions of Americans on track to retire into poverty.
The beauty of Secure Choice is that it up-ends the current retirement debate. Now we pit Californians against each other in a race to the bottom. Instead of focusing on reducing the benefits of those 1.4 million workers who have earned them, it shifts the current retirement conversation to the one we should be having: how to make retirement security available for the 7.5 million California workers who don�t have it.
The stark facts are that California�s workers, nearing or at retirement age, have not saved enough. They are profoundly unprepared for retirement.
- According to University of California (UC) Berkeley, three out of 10 seniors in California do not have enough income to cover their basic needs. The median personal income of California seniors is less than $22,000.
- Less than half of senior-headed households in California have retirement income other than Social Security.
If these figures do not already deeply trouble you, this should: subsequent generations are on track to retire with less.
I want a different future � one that allows all Californians to retire with dignity.
That future begins with Secure Choice.
Many employers do not provide retirement plans. Secure Choice will change that. It will require them to either offer their own plan or make automatic payroll deductions into a Secure Choice account for each of their employees. These accounts are low risk, have low fees, and will follow the worker from job to job. Importantly, an employer will not be obligated to match any worker contributions, nor assume any legal liabilities or fiduciary responsibilities.
What�s more, employees have the ability to �opt out� by electing not to participate in the savings plan.
The Employee Benefit Research Institute has found that participating in automatic payroll deduction plans makes a person 15 times more likely to save for their senior years.
A lifetime of contributing to a Secure Choice account could ensure that many more Californians will escape an impoverished retirement.
Coming up with a plan for Secure Choice has been eight years in the making. The idea was first floated in 2008 by then Assemblymember Kevin de Le�n, now the Senate president pro tem. The senator�s legislation, passed in 2012, establishes a board, which I chair, to develop a financially sound plan to provide retirement security for all private sector employees.
By the way, consultants to the Secure Choice Board just released an analysis concluding the plan to be fiscally and lawfully feasible. By the end of March, the Board will transmit its findings and recommendations to the governor and lawmakers. From there, it will be up to these state leaders to act.
The crisis threatening Guadalupe was years in the making. It�s rooted in decisions made by most private sector employers to stop providing pensions with fixed, monthly payments.
This is a crisis that threatens to overwhelm our social safety net, challenges our status as the world�s 8th largest economy, and should cause us to question our values and priorities.
Now, let us end where we began and speak a bit more about what retirement security should look like in the future.
Income Inequality is a Driver of the Retirement Crisis
Source: U.S. Census Bureau, Current Population Survey, Annual Social and Economic Supplements, Share of Aggregate Income by Households, 1967 to 2014
The chart shows the widening income gap that is driving the retirement insecurity crisis. The incomes of the richest 5% are rising and the incomes of the poorest 40% are falling.
Everyone � including economists and policymakers on the left and right � acknowledge the growing wealth concentration caused by this income gap.
Today�s retirement crisis is a product of this growing wealth inequality as well as an economic era in which a returning GI, a skilled tradesperson, or a recent college graduate can no longer expect a lifetime job and a pension.
Secure Choice is an essential part of a solution to the retirement security quagmire. It can teach millions of Californians to save so they do not have to choose between paying rent and buying groceries in their retirement years.
This is why I believe it is critical that we pass Secure Choice. It would be the largest expansion of retirement coverage since Social Security was enacted in 1935.
At its signing, President Franklin Delano Roosevelt called Social Security �a measure of protection to the average citizen and his family against poverty-ridden old age.�
FDR�s words ring even truer today.
It is a moral imperative that we continue his struggle. We must approve a Secure Choice law this year and get it working as quickly as can be done responsibly.
Secure Choice is the beginning of a New Deal for California.
The excerpt above is from Treasurer John Chiang�s keynote address delivered Feb. 11, 2016 at Capitol Weekly�s Seminar on Public Pensions.