Workers in some states will soon have another option to save for retirement. California is the latest state to pass a law that establishes state-run retirement plans for workers who do not have a plan through their employer. A handful of other states already have similar laws on the books, and the Obama administration has issued a regulation to encourage more states to set up retirement plans.
The California law requires businesses with at least five employees to participate in the state plan if they don't already offer a 401(k) or other retirement plan. Workers will be automatically enrolled in the plan and contribute 3 percent of their pay, but they have the option to opt out or change their contribution amount. Unlike with a 401(k), employers cannot contribute to the plan.
Connecticut, Illinois, Maryland, and Oregon have all passed laws that create retirement plans for private-sector workers. Massachusetts has a law providing retirement plans to nonprofit employees and is studying the feasibility of one for all private-sector employees. Both Washington and New Jersey are establishing state-run online marketplaces that offer low-cost retirement savings plans to small businesses. Several other states are considering bills that would set up their own state-run plans. For more information on what states are doing, click here.
The U.S. Department of Labor in August 2016 issued regulations that make it easier for states and large cities to set up savings plans. The regulations provide a road map to creating a retirement savings plan that won't conflict with federal law regarding pension plans. These regulations are the latest effort by the Obama administration to encourage people to save. In 2014, the administration established the myRA savings program, a starter investment account aimed at low- and middle- income workers.
For more information about state-run retirement plans, go here: https://www.cnbc.com/2016/08/19/california-set-to-join-states-offering-retirement-plans.html