Today, California Gov. Jerry Brown signed the Secure Choice Retirement Savings Act intolaw.

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The bill intends to extend access to retirement savings accountsto about 6.8 million private sector workers in the state that donot have access to a savings vehicle through the workplace.

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Related: Many believe U.S. faces retirementcrisis

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The law mandates that California employers with five or moreworkers sponsor a retirement plan. Employers that don’t have a planand opt not to sponsor a plan will be required to automaticallyenroll employees into the state-sponsored retirement savings program.

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For the first three years of the program, all assets will beinvested in U.S. Treasuries, or myRA accounts, the savings programestablished by the U.S. Department of Treasury that also investssavings in bonds issued by the federal government.

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Workers will be able to opt out of the program, a provisionrequired of the safe harbor on state-sponsored retirement plansrecently issued by the Department of Labor.

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Under the new law, enrollees will have 3 percent of their annualsalary deferred to individual accounts administered by the state.Deferrals may automatically escalate up to an 8 percent threshold.Beyond the ability to opt out, workers will have the option toadjust deferral rates.

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According to the California State Treasurer’s website, the lawis slated for implementation on Jan. 1, 2017. But recent mediareports suggest more time will be needed to implement the program,and a 2018 launch is more likely.

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In the first year, the costs to implement and administer theprogram will be appropriated from California’s general budgetfund.

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The law requires that the initial taxpayer funds needed tolaunch the program to be repaid from investment accruals. After thefirst year, the law prohibits the program’s administration costsfrom exceeding 1 percent of the total fund’s assets.

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The program will be administered by an investment board, comprised of nine membersand headed by the state treasurer, and will include several membersappointed by the governor.

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How the program is to work

Mandatory enrollment will be phased in relative to the size ofeligible employers: Those with 100 or more employees will have 12months from the time of the program’s launch to enroll workers;those with 50 to 100 employees will have two years; and all othereligible employers will have three years to enroll workers.

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The investment board will have discretion to adjust the minimumdeferral between 2 and 5 percent of salary, depending on the lengthof time an individual enrollee has participated in the program. Thelaw prohibits the statefrom guaranteeing the assets in thefund.

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Over 75 percent of low and middle income retirees in Californiarely exclusively on Social Security to fund retirement, accordingto a primer issued by California’s treasurer. Nearly half ofCalifornia’s workforce is on track to retire with incomes 200percent below the federal poverty level.

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The law has wide support from the AARP and trade unions.

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“Secure Choice will help millions of California workers improvetheir financial security by offering them a low-risk, low-cost andportable savings plan. California’s innovative approach is beingwatched nationwide as a model for improving retirement security formillions of Americans,” said Nancy McPherson, California statedirector for AARP, in a statement.

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Throughout the legislative process, the Investment Company Institute, a tradeorganization that advocates on behalf of the mutual fund industry,has issued extensive criticisms of the program.

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This August, Investment Company Institute CEO Paul SchottStevens wrote Brown, saying that the program’s success relies on anoverly optimistic assessment of the program’s likely adoption rateamong workers. Stevens also said the program assumes highercontribution rates than low-income participants will be able todefer.

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“California taxpayers or program participants — most likely both— will likely find themselves bearing unanticipated costs as aresult of the program,” Stevens wrote in the letter to Brown.

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Though the law prohibits the program’s assets from being backedby taxpayers, Stevens said, “there exists a very real possibilitythat California taxpayers ultimately will need to bail out theprogram.”

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The Investment Company Institute says that the program andinvestment board will be required to register with the Securitiesand Exchange Commission, and be required to comply with theInvestor Advisor Act of 1940. That would make the program moreexpensive to operate than the law’s feasibility study assumes, thetrade group says.

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Nick Thornton

Nick Thornton is a financial writer covering retirement and health care issues for BenefitsPRO and ALM Media. He greatly enjoys learning from the vast minds in the legal, academic, advisory and money management communities when covering the retirement space. He's also written on international marketing trends, financial institution risk management, defense and energy issues, the restaurant industry in New York City, surfing, cigars, rum, travel, and fishing. When not writing, he's pushing into some land or water.