CalSavers, California’s auto-IRA savings program for workers without access to a workplace retirement plan, will delay its June 30 enrollment date for businesses with more than 100 employees. The California Secure Choice Retirement Savings Investment Board, which oversees the program, unanimously voted to push June’s deadline to September 30.
“Business owners are facing unprecedented challenges due to the COVID-19 emergency,” said California State Treasurer Fiona Ma, chair of the Investment Board, in a statement.
“We hope this action will help employers as they navigate through this difficult time. We are ready to help employers get started as they move into recovery,” Ma said.
June’s deadline was the first mandatory enrollment date. A rolling implementation is scheduled over the next two years. By 2022, employers with five or more workers will be required to enroll employees in the program if they don’t already sponsor a retirement plan.
“Now more than ever, the importance of long and short-term savings is clear. CalSavers was designed to be flexible and, if necessary, help savers through periods of emergency,” said Katie Selenski, CalSavers’ executive director.
The state opened a pilot program last year, and as of March 18, there were 1,618 registered employers, and 5,610 funded accounts.
The default savings rate is 5 percent. While employers are mandated to enroll workers if they do not offer a retirement plan, enrollees can choose to opt out.
So far, the opt-out rate has been 32.6 percent, high compared to automatic enrollment opt-out rates in private sector plans, but low when considering the type of worker CalSavers is targeting, explained Selenski in previous reporting.
The median income of enrollees is estimated to be $25,000. Typically, savers in private-sector plans are incentivized to save by employers’ matching contributions. But in CalSavers, as is the case with auto-IRA plans in Oregon, Illinois, and those being contemplated in up to 20 other states, employers cannot contribute.
“This is people—often lower wage earners—choosing to save 5 percent of their earnings without the financial incentive that most savers in 401(k) plans have. We are proud of the opt-out rate,” said Selenski.
12 percent withdrawal rate during COVID-19
Ascensus, recordkeeper to the CalSavers plan, has been able to move its call center capabilities remotely without an interruption to services, Selenski said at Wednesday’s board meeting.
Under the plan’s design, the first $1,000 is deferred to a capital preservation money market fund. About a quarter of all savings are in the money market fund, with 85 percent of participants invested only in the money market fund.
“Only a small number of savers have lost money,” said Selenski.
But as the Federal Reserve lowered interest rates to combat the voracious sell-off in equities as much of the country’s economy was effectively shut down, concern emerged that some savers would see losses in the money market funds, net of fees. In response, State Street, which is the investment consultant to the plan, waived fees to avoid the possibility of negative savings yields.
About 12 percent of accounts have seen withdrawals, as millions in California are now on unemployment. “We expect this number to go up,” Selenski said. Savings are held in after-tax Roth IRAs, so savers suffer no penalty for withdrawing savings.
CalSavers has moved its field outreach operation to employers online, and is planning added support services to account for the difficulties employers face struggling to survive the forced economic shutdown.
“We will experience some bumps here, but I think in the long term, this experience will underscore the importance of this program,” said Selenski.