California is preparing to create a mandatory state-run retirement plan for an estimated six million workers at companies that currently offered no retirement benefits.
With the move, California will become the first state to require companies to take part in such a system. Colorado, which was also considering the idea dropped it in May, and New Jersey and Washington had opted instead for programmes with very limited state involvement.
However, Connecticut, Oregon, Maryland and Illinois are moving ahead with their own state-run retirement programmes and were looking to California as an example.
Under California's plan all companies in that state with five or more employees would need to take part in what was being called the Secure Choice Retirement Savings Program. The biggest companies would start first, and the smallest companies would have three years to get ready.
However, the first Secure Choice accounts would be expected to see money inflows only sometime in 2017.
The companies would not be required to contribute their own money to the programme, but they would only enroll their workers. The measure also did not make state taxpayers directly liable.
The financial services industry was however, questioning whether the programme would be financially viable and what would happen if it was not.
Meanwhile, The White House said in a press release, ''After a lifetime of hard work, Americans should be able to enjoy a secure and dignified retirement. While Social Security is and must remain a rock-solid benefit that all Americans can rely on, too many Americans reach retirement age without enough savings to supplement their Social Security checks – in part because many Americans don't have a way to save for retirement at work.''
''At last year's White House Conference on Aging, the President directed the Department of Labor (DOL) to issue rules providing states looking to create their own retirement savings plans with a path forward consistent with federal law. The Department issued proposed rules in November, and today finalised those rules. This marks a major step towards ensuring that every American can save for retirement at work and better prepare for their golden years.''
''Eight states – California, Connecticut, Illinois, Maryland, New Jersey, Oregon, Massachusetts, and Washington – have already passed legislation creating their own retirement savings arrangements. These states have taken action, even while Congress has failed to move forward on the President's federal budget proposal to automatically enroll workers who don't have access to a workplace savings plan in an IRA.
"Today's rule addresses concerns raised by some about preemption or coverage by the Employee Retirement Income Security Act (ERISA), provides a path forward consistent with federal law, and will enable even more states to create their own programs. The Department is also announcing a proposed rule that would allow some larger cities to establish their own retirement savings programmes.''