California Secure Choice Retirement Savings Investment Board

What This Means for Employees

When the Secure choice program is open for business, employees, who work for an employer that does not provide an employer-sponsored retirement plan, will be able to make an automatic payroll contribution into their personal Secure Choice IRA account. An employee can choose not to participate. The account will stay with the employee from job to job throughout their career. Upon retirement, the employee could take all their money out or convert it to a monthly income stream.

How do employees participate?

Enrollment in Secure Choice is voluntary for employees. To participate, employees will be required to acknowledge their consent to participate. If an employee enrolls, but decides they no longer want to participate, they may opt-out of the program at any time. Employees will be given an opportunity to re-enter the program during an open enrollment period at least once every two years.

How much will participants have to contribute?

Employees can choose to set their own contribution rate. If a participating employee does not set their own rate, they will contribute a default contribution rate. The statute sets the default contribution rate at 3%, but the Board would be able to adjust the default contribution rate to no less than 2% and no more than 5% of each paycheck.

The Secure Choice Board may adopt automatic escalation, in which employee contributions would be automatically increased by 1% annually up to 8%, but employees may choose an alternative rate.

What type of investment plan could an employee invest in?

For up to the first three years of the program, the Board will establish managed accounts invested in U.S. Treasuries, or similarly low-risk investments. During that time the Board will develop investment options that minimize fees and provide maximum possible income replacement balanced with appropriate risk. The Board may also develop investment options that address risk-sharing and smoothing of market losses and gains.

Will there be a cost to participate?

There will be a small fee that will be paid out of the employees’ payroll contribution.

Could an employee take money out in case of an emergency?

The Board understands that in emergency situations participants may want to access their retirement savings. The statute allows for the Board to develop a policy for hardship withdrawals. However, early withdrawals from retirement plans may be subject to taxes and penalties. For more information, please visit the following page on the Internal Revenue Service (IRS) website. 
https://www.irs.gov/retirement-plans/hardships-early-withdrawals-and-loans

What happens if an employee changes jobs and their new employer doesn’t participate in Secure Choice?

The employee’s Secure Choice account will remain active throughout their career unless they choose to stop participating. The statute requires the Board to develop a process for employees to continue to contribute to their account, but it would not require employers, who already offer a retirement plan, to enable an automatic payroll contribution.

How much will I be able to save for retirement?

How much you will be able to save depends on how long you will be working before you retire, how much you contribute during each pay period, and the type of investment plan that you choose. The most important factor is time. The more time you have to save, the more your money will be able to grow beyond what you contribute. This is called the magic of compound interest. Every time you contribute, you get interest on your contribution plus the interest you have already earned. For example, if you contribute $50 a month you will get interest on the first $50. After the second contribution, the interest you receive will be based on the $100 you contributed, plus the interest you earned on the first $50. Every time you contribute, the amount of interest you earn will get bigger because it is based on your total contributions plus the interest you have earned on that total. That’s how your money makes money.

Total annual contributions to IRAs cannot exceed certain amounts established by the Internal Revenue Service (IRS). To learn more about IRA contribution limits, please visit the following page on the IRS website:
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits