Eleven years in the making, the nation's largest state-sponsored retirement program, CalSavers, opened for business Monday and is ready to serve an estimated 7.5 million workers who do not have a workplace retirement plan.
The new CalSavers program is required for all California employers with five or more employees that do not already have a retirement plan. Employers with more than 100 employees have until June 30, 2020, to register; those with 50 to 100 workers have until 2021; and those with five to 50 have until 2022.
Self-employed workers can start the program in September.
The automatic enrollment payroll-deduction IRA is operated as a private-public partnership overseen by the California Secure Choice Retirement Savings Investment Board, chaired by state Treasurer Fiona Ma.
Employees can choose their own contribution rates up to standard IRA maximums and have five investment options. The accounts are portable and employees can opt out if they wish.
The official July 1 launch followed a six-month pilot program that CalSavers officials consider a resounding success. Feedback from employers and employees in the pilot led them to add an ESG fund as one of five investment options. Another pleasant surprise was that only 22.5% opted out, leaving 1,600 employees participating in the pilot. Those who stayed chose an average contribution rate of 4.93% per paycheck close to the 5% default rate, according to CalSavers Executive Director Katie Selenski.
Each saver who does not opt out of automatic escalation will see an automatic annual increase of 1% of salary, up to a maximum of 8%.
Officials learned that employer engagement is key, Ms. Selenski said in an interview. "We are focusing on designing a simple program to use." It would be considered a success if it inspires employers to turn to the marketplace for other retirement plan options for employees, she added.
The program will be administered by Ascensus, which already manages the nation's first and second programs in Oregon and Illinois. State Street Global Advisors will manage investments for four funds, and Newton Investment Management will manage the CalSavers ESG Fund. Other consultants are Meketa Investment Group, AKF Consulting and K&L Gates law firm.
Fees at program launch are 82.5 to 95 basis points. That includes 75 basis points for program administration up to $5 billion in assets, a 5-basis-point state administrative fee, and investment manager fees that range from 2.5 basis points for a bond fund to 15 basis points for the ESG fund. Participant fees are expected to shrink after the three-year rollout.