In a time when employers are
increasingly trimming or completely forgoing employee retirement benefits,
political leaders in California hope the government can help
young workers take matters into their own hands.
Just as the individual
marketplace created by the Patient Protection and Affordable Care Act (PPACA)
seeks to make it easier for those without employer-sponsored health care to get
insurance, a proposal being considered by California legislators would set up a
state-run 401(k) plan for those whose employers do not offer retirement plans.
Just as it was entirely possible
(and common) to buy insurance individually before the PPACA, setting up an
individual retirement account is by no means impossible either.
The problem is that millions of
workers have not taken the necessary steps to plan for retirement. A recent
study found that 45 percent of working-age households do not possess any
retirement assets, such as a pension, 401(k), or IRA.
The meager retirement assets of
younger workers is made all the more ominous by the fact that social security
will likely not be able to guarantee the same level of retirement income as it
has for their parents and grandparents.
California’s potential solution
would be a system in which employees who lack employer-sponsored retirement
accounts would automatically be enrolled in the state plan, to which they could
contribute between 2 percent and 5 percent of their wages, which the state
would invest on their behalf.
The system would not be
mandatory, but employees would have to take the step of opting out if they
don’t want to participate.
AARP, the influential advocacy
group for retirees, is backing the plan, and a number of liberal groups will
likely support it as well. Such interests hold great sway in the California
legislature, currently controlled by Democrats.
"These are plans that would
be set up for employees who have nothing," Karen Friedman, policy director
for the advocacy group Pension Rights Center, told the LA Times. "It's a
way of getting people saving. But we look at them as modest savings plans.
They're not a replacement for good, old-fashioned pension plans."
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