California’s CalSavers passed a milestone this week, as businesses with more than 100 workers had to register for the program unless they already provide a retirement plan.
To date, the auto-IRA-style program, which went live in a pilot phase in 2018, has built up about $11 million in assets among the 3,500 businesses that participate, according to the state.
Wednesday's deadline had been extended from the prior effective date of June 30 as a result of the pandemic. The influx of new participants will almost certainly help the program ramp up much more quickly. A week before the deadline, CalSavers had started seeing more growth, executive director Katie Selenski said in an email.
The next deadline in the phased rollout of the state-sponsored program is June 30, when employers with 50 or more workers will have to participate. Businesses with five or more employees will have to register by June 30, 2022, according to the state.
It’s one of the first state-sponsored retirement savings programs for private-sector workers, and it could quickly become the biggest. CalSavers estimates that 3,000 to 4,000 businesses are covered by this week's deadline, and 1,500 such companies had already registered. Several hundred thousand workers are expected to be covered by the program, and so far an average of 65% of eligible employees have not opted out, according to CalSavers.
A growing market
Collectively, state-sponsored retirement initiatives have amassed about $117 million in assets, according to AKF Consulting Group, which published a report Thursday on the state plan market.
Some states, including Oregon and Illinois, have launched similar “Secure Choice” programs, and other states -- Colorado, Connecticut, Maryland and New Jersey-- are developing them, along with the city of Seattle, according to the Georgetown Center for Retirement Initiatives.
There are also multiple-employer plans from two states -- Massachusetts’ is live, and Vermont is readying one. Washington also has a voluntary retirement plan marketplace overseen by the state, and New Mexico is preparing a similar system, as well as a voluntary payroll deduction IRA. New York has also enacted a voluntary payroll deduction IRA, according to Georgetown CRI.
The pandemic’s recession has hit countless businesses, and many have furloughed or laid off big portions of their workforces.
Some businesses that had at least 100 employees before the pandemic now do not, though that doesn’t necessarily mean that they don’t have to comply with CalSavers registration.
“It’s too early to say, but based on the latest data available to us it does appear there was a slight drop in the number of employers filing with our sister state agency,” Selenski said.
By law, CalSavers determines employer size based on the average of the prior four quarterly filings with the state’s employment development department, “which allows us to account for seasonality and other fluctuations throughout the year, so our comprehensive update will happen after the end of the year,” Selenski said. “That is when we will see the full effect of the recession and how it might change our pool of employers.”
With the new registration deadline, the state provided extra help to employers in registering, she said.
“If an employer reports that they are completely shuttered right now, we’re holding them until they resume operations and payroll,” Selenski said. “We hope that employers will see CalSavers as part of their recovery plan as they reopen and consider what it means to be competitive and offer a good job in this new normal.”
State-sponsored programs have been designed around saving and investing, or accumulation, said Andrea Feirstein, managing director of AKF Consulting Group, whose firm is an adviser to state-run retirement programs, 529 college saving programs and ABLE plans. AKF works with California, Connecticut, Illinois and Maryland on their public retirement plans for private-sector workers.
Like private employer-sponsored plans, the public ones would benefit from helping participants learn how to safely spend down their savings in retirement, Feirstein said.
“It’s never too early to start to think about how you accommodate the decumulation need,” she said. “I’d like to think that our next generation, meaning plans that are in the pipeline … may be able to think about how you implement this.”
That could include a managed payout fund or strategy, with the goal of helping people delay claiming Social Security until their full retirement age, Feirstein said. Generally, savers need education about spending down their assets, she noted.
“That’s the scary part,” she said. “You don’t know how long you’re going to live.”
The state initiatives that are being developed have the benefit of learning from mistakes and improvements made by the few already on the market, Feirstein said. Plans currently in development could have different pricing structures and distribution models than those already up and running, she said.
Smaller states would also benefit from alliances with larger ones -- a tactic already used in the 529 ABLE market, she said. For example, Rhode Island could partner with Connecticut to get better pricing options.
“What we want to see are more states get on this bandwagon, because this is a [retirement-savings] problem that is universal across the 50 states,” Feirstein said.
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