President's directive allows California to proceed with state-run private retirement program

Associated Press

California can proceed with setting up a state-run savings program for private-sector workers who don't have access to retirement plans at work, under a rule change ordered by President Barack Obama on Monday.

The president directed the U.S. Labor Department to make administrative changes by the end of the year that will allow states like California to implement their own retirement programs. The agency will have to craft an exemption enabling states to bypass the federal pension law, called the Employee Retirement Income Security Act.

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Senate President Pro Tem Kevin de Leon hailed the decision to help low-wage workers facing financial hardship as they age.

"Recognizing that states are leading the way on retirement security, President Obama's action removes the most signification barrier to state action across the country," de Leon said in a statement. "California, and states that follow our lead, will now be able to ensure tens of millions of hard-working men and women will have a shot at retiring with dignity."

De Leon, a Los Angeles Democrat, authored SB1234, which Gov. Jerry Brown signed in 2012, in response to what he called the "looming retirement tsunami." The bill lays the groundwork for the California Secure Choice Retirement Savings Program, which directs employers to withhold 3 percent of their workers' pay unless the employee opts out.

Supporters said the program is not a pension but rather acts as a savings account for improving retirement savings. Critics worry it could create a new liability for taxpayers on top of the state's existing pension system for public workers.

Currently, a nine-member board chaired by the state treasurer is conducting a market analysis and feasibility study paid by private donations. The board expects the study to be ready by the end of the year, according to Catalina Martinez, the treasurer's spokeswoman.

The program still needs to be approved by the Legislature before it is implemented and participants can be enrolled.