California recently launched a program to serve employees of small businesses that don't offer employer sponsored retirement plans. Employers with 5 or more employees that do not offer an employee sponsored plan will need to register employees for paycheck deductions into a CalSavers Roth IRA. The program defaults to 5% of gross pay in the first year and increases by 1% of gross pay until saving 8% of gross pay. Of course employees can opt in/out at any time, but the default is to contribute.
The good:
- default to saving for retirement - someone accepting the defaults and working for 35 or more years should have a reasonable retirement fund when paired with Social Security
- Investment choices are reasonable
- no cost to employers
The bad:
- administrative fee is 0.825%-0.95% of AUM
- this is just a IRA, no real new opportunities for these employees to save, just a default to savings with high AUM fee
- currently only Roth IRA, but they plan to add Traditional IRA