- Associated Press - Monday, March 28, 2016

SACRAMENTO, Calif. (AP) - California lawmakers and Gov. Jerry Brown will decide whether to go forward with a plan to automatically enroll private-sector workers in state-run retirement accounts, an effort that could affect nearly 7 million people who don’t have access to a pension or 401(k) savings plan at work.

A state board, created by lawmakers in 2012 to study the idea, voted Monday to forward to lawmakers a series of recommendations to put it into practice. Their move came after lawyers and consultants determined it’s a legally and financially viable option to help prepare Americans for a financially stable retirement.

“We think of retirement as something that is far, far away. But we have to recognize the lack of security that so many Californians will face is a challenge that we have to tackle today,” said Senate President Pro Tem Kevin de Leon, a Los Angeles Democrat who has advocated the state retirement accounts for four years. “You can’t simply rely on Social Security.”

Business groups and the retirement investment industry worry the plan isn’t ready and could benefit from more study.

“Employers must not be exposed to risks for employee assets or investment choices and must not face traps that could cause inadvertent liability,” a coalition of business groups wrote in a letter to the Secure Choice Investment Board, which developed the recommendations for lawmakers.

The proposal, which will become SB1234, would require employers that don’t offer retirement accounts to automatically enroll their employees in the state-run plan. Unless workers opt out, a percentage of their earnings would be deducted from each paycheck and held in lower-risk investments. The plans would stick with workers as they move from job to job, allowing them to accumulate larger balances in a single account.

Like a standard individual retirement account or 401(k), the investments would be subject to the ups and downs of financial markets, including the potential for losses.

“With any type of investment comes risk,” de Leon said at a Capitol news conference. “That being said, this is not looking for high yield that’s risky for individuals whose margin to begin with is slim to non-existent. It’s a conservative investment over time where the principal will be very, very safe.”

The system would be overseen by a board with authority to make decisions about investment options, the default savings rate and benefit payouts in retirement. Financial consultants recommended a default savings rate of 5 percent, which would rise by 1 percent a year until it reaches 10 percent of pay.

The idea has taken hold elsewhere. Lawmakers in Oregon and Illinois have adopted similar legislation and are working on implementation. Bills pending in several others states would do the same.

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