California could be about to change the retirement savings landscape for the better, thanks to the introduction of CalSavers, a pension program that has guaranteed a State-sponsored retirement plan for every employee.
CalSavers is linked to a State Law that requires companies of five or more employees to either sponsor a retirement plan or participate in CalSavers. The program is based on IRAs that start with a default savings rate of 5% of an employee’s paycheck.
Here’s how the change in California could influence the rest of the nation.
Millions More Americans Will be Better Prepared for Retirement
More than 7 million working Californians currently have no access to an employee-sponsored retirement plan. CalSavers may prompt some small businesses to create their own competitive retirement programs, which will ultimately work out better for employees. Even if employers don’t create plans, employees will still be able to start saving through CalSavers.
This will significantly change savings statistics in the United States. California is the most populous State and is responsible for almost 15% of America’s total GDP. Retired individuals with more financial security would benefit the local economy and in turn, the entire national economy.
Savings for the Californian and Federal Governments
Lack of retirement savings can place more strain on social services, which impacts both the State and Federal governments. This puts additional pressure on taxpayers across the nation.
It has been estimated that almost 50% of Californians have no retirement savings or assets to fall back on. With an aging population, the burden of senior social services and assistance programs is increasing. CalSavers will help to offset this.
Providing a Retirement Plan Model to Other States
Most importantly, CalSavers will serve as a model to other States. Universal government-backed IRA-style accounts have become increasingly popular throughout the developed world. With California now adopting its own universal system, citizens elsewhere could start to demand similar benefits. This will create incentive for legislators to introduce their own programs. Illinois and Oregon already run similar retirement programs.
While some of California’s laws and regulations are viewed as unnecessary and even overbearing, this is one policy that could gain a lot of attention and support throughout the United States.
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