California’s “Secure Choice” Proposal

With a rash of studies indicating major shortfalls in the nation’s retirement savings, there has been no shortage of proposals to reform pensions, both public and private, and to induce a greater savings rate for younger workers. As Baby Boomers move into retirement, the lopsided nature of the workforce to retiree ration means that now, more than ever, people need to be mindful of where the money for their twilight years is going to come from.

One such proposal is California’s Secure Choice Retirement Savings Program, a mandatory savings initiative that would require private sector employers to put aside three percent of their workers’ pay into a retirement account guaranteed by the government. The proposal is modeled, in part after mandatory savings programs that exist in other countries, and which have widely been touted as successful, with Australia being a particularly noteworthy case. Although secure choice has not yet passed the California legislature, it has the support of Governor Jerry Brown and other states are already beginning to show an interest in adopting similar ideas.

Naturally, the idea of a mandatory savings program is not without controversy. Critics of the idea point out that Social Security was also supposed to be a guaranteed retirement account, but that that promise was broken long ago, leaving the program struggling for solvency. They argue that another entitlement program isn’t the answer, and there are also concerned about an already paternalistic state telling private sector workers and employees what to do with their own money.

Supporters of Secure Choice, on the other hand, are quick to answer that there is an ability to opt out of the savings requirement, and that the program only affects private sector employers who do not already offer some type of retirement account. Three percent of one’s wages is not going to be a sufficient sum on which to retire, but is intended merely to supplement Social Security and any other private savings workers have accrued throughout their careers.

Secure Choice is not the only option on the table to increase American retirement savings; Michigan has been experimenting with a prize-based approach that shows some promise. But California’s bold initiative is one of the more dramatic and attention-getting ideas. If it proves successful, it could end up spreading rapidly, changing the savings landscape significantly in a relatively short period of time.

Leave a Reply