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The State of State Run Retirement Plans & the Golden Bear Launch

NEW: Bonus Question

Question: Do the IRS income limits for Roth IRAs apply to state retirement plans?  If so, what should employers or their employees know?

Katie Selenski: Yes, the IRS income limits apply to CalSavers. Participants in our Roth IRA (the default setting) should be mindful of the limits and while the Program will provide information about the limits in our communications, it is the participant’s responsibility to monitor their eligibility. If someone inadvertently contributes to a Roth, but are ineligible, they can either request a return or recharacterize it to Traditional by the tax filing deadline. Starting around the end of 2019, we will offer a Traditional IRA which in most cases does not have an income limit (review the IRS rules for exceptions).

Listen now!

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With Guest:
Katie Selenski, Executive Director, CalSavers

Katie Selenski was appointed in 2017 by the California State Treasurer to serve as the first Executive Director of the California Secure Choice Retirement Savings Investment Board which operates CalSavers, the state’s pioneering retirement savings program. The program will provide a path to retirement security for millions Californians who currently lack access to a retirement savings vehicle at work.


Prior to taking the helm at CalSavers, Ms. Selenski was the State Policy Director for pension policy at The Pew Charitable Trusts in Washington, D.C., where she managed Pew’s efforts to help fiscally distressed states and cities undertake data-driven pension system improvements.  Previously, she was a senior manager with the nonpartisan public sector consulting firm Harvey M. Rose Associates, based in San Francisco, where she advised policymakers on a wide array of budget, management, and policy matters, including pensions. She has also worked as a municipal bond rating analyst, a legislative fellow in the California Assembly, and the director of an historic statewide nonpartisan youth voter turnout initiative. Ms. Selenski is a member of the advisory board of the Aspen Institute’s Leadership Forum on Retirement Savings. She is a graduate of the University of Chicago and the John F. Kennedy School of Government at Harvard University.

Recap, Highlights, and Thoughts

There are three state run retirement plans that are now live.  Despite the fact they have been in the news, there are still a lot of questions about what they are, how they work and how they impact employers and employees who already have a 401(k) or other workplace retirement plan.  To help provide some information and clear up misperceptions I am excited to have Katie Selenski, the Executive Director of CalSavers, the newly launched California state retirement plan join on the podcast. 


During our conversation, Katie takes care of the basics and also shares the highlights of some research they did when preparing to launch their plan, some of which might be a bit surprising and other points could help employers with some decisions about their own retirement plans.  We also discuss the profile of the businesses that will benefit from state plans, how wage theft laws provide some protection to employees who participate in them, whether there might be a national plan at some point in the future and what’s next for state plans.  


If you have any other ideas to improve the podcast please share them with me via email,

Thanks for listening!​​

Sincerely Your Host, 

Rick Unser

NEW: Episode Transcript

Rick Unser:    00:00    Well, Katie, welcome back to the podcast. It's been a little while and you sure have been busy in that timeframe. So I can't wait to hear what's been going on with state plans in cal savers and all that fun stuff. So looking forward to it.


Katie Selenski:    00:14    Thanks Rick. It's great to be back. And yes, a lot has happened since our last conversation.


Rick Unser:    00:19    Well for maybe those who haven't been following state plan or state programs, state plans, state programs, we'll talk about that probably a little bit too. Um, let's maybe just start with a quick reset. Remind me and others, what's kind of the overall thesis or purpose behind the state programs that uh, California and others have either launched or are in the process of launching?


Katie Selenski:    00:45    Yep. So let's just start with reminding ourselves of the problem that cal savers and Illinois secure choice and Oregon saves and the other states are trying to address. It's simple. A third of American households, age 55 and older have zero retirement savings beyond social security. And in California that figure is even worse. Half of work in California and some zero retirement assets. And that's according to a UC Berkeley study actually just revised and released last week. So that is, you know, if you take a moment to let that sink in, that is, that's profound. And, and when you consider that the average social security check is just about $1,400 a month. And especially when you consider the high cost of living in California, you know, that's a real problem. And I think policy makers in these states and these early pioneering states, I've spent years trying to figure out what is the best solution to that problem and what, you know, what role might government have to play there?


So we know that one of the drivers of this problem is that there are 55 million Americans and about seven and a half million Californians who lack access to a workplace based or retirement savings vehicle. And that's not necessarily like a defined benefit pension or 401k, that's just any kind of a savings vehicle at work through the, through the paycheck. But we do know that based on research, the people are 15 times more likely to save for retirement and be on a path to retirement security if they have a way to save at work via their paycheck to, you know, just really set it and forget it. So that was really the premise of cal savers that saving at work via the paycheck and doing it on an automatic enrollment basis is key. And I'm sure your audience is very familiar with the power of automatic enrollment.


So really the purpose is to provide universal coverage and access to a workplace based retirement savings vehicle for four working Californians. And the here in California, our authorizing statute really has two very powerful features. One is the employer requirement, and that says that for all employers in the state with five or more employees, if you don't already offer some kind of retirement savings vehicle that is on our qualified list, you either have to go get one off the private market just like you can right now. Or you must register for cal savers and facilitate cal savers for your employees. So that's the first really powerful feature of it. And then the other one, as I said, is automatic enrollment. So while the program is completely voluntary for employees, they can opt out at any time. If they don't want to participate, they will have to opt out, meaning that once they get the notice, there's a 30 day opt out window and if they don't opt out during that window, we'll automatically enroll them. They can then of course opt out at any time in the future. But those are the two really powerful policy levers that we know work based on all of the research in the industry and in behavioral economics. So that's really the essence of it in a nutshell.

Rick Unser:    03:51    Yeah. And I think you said a lot of really good stuff there. And one thing that I know you guys have as part of the mandate is this concept of automatic enrollment. We've talked about that a lot on the podcast. I think a lot of employers over the years have become more accepting and embraced automatic enrollment, certainly added it to their workplace, retirement plans, four one k plans, et cetera. But, but you and I were talking a little before we got started here about maybe this demographic that is likely to be participating in a, in a state program like yours where they are probably going to skew a little to the lower income side a there, as you mentioned, probably not gonna have much if any retirement savings and, and I know one thing that employers have struggled with who offer 401k plans is well if someone's making $15 an hour, if someone's making $25,000 a year, whatever the number is, should we be automatically enrolling them in our workplace retirement plan or is that maybe not helpful to their overall financial picture? So I'd love to hear some of the deliberations or some of the, the, the research or some of the thought processes that you guys went through that said, yes, this does make sense for folks that maybe are a little lower on the income spectrum, lower on the retirement savings side to be automatically enrolled in a program like this.

Katie Selenski:    05:20    Yeah, absolutely. I'm glad you asked that. We are as a program and as a board based here at the State Treasurer's office, we are very, very sensitive to the cash flow needs of our participants. We expect we're going to have a total pool of about seven and a half million hardworking Californians who currently lack access, who may have access if their employers choose to facilitate cal savers. And we know that in that group the average income is about $33,000 a year. Many of those people are patching that together through multiple, some of them are participants in the Gig economy, so it's not only relatively low income but also more volatile income. So we're very sensitive to that. We know that, oh, out of California, and they're struggling with cost of housing and a few things that we did to address those concerns and those sensitivities. Number one, we designed the default setting to be a Roth Ira, meaning post tax.

And we did that and we considered that, you know, very carefully the board takes its mission for longterm retirement investment really seriously. And we'd certainly don't want to encourage people to take their money out, but we've heard very loud and clear from the stakeholder community, especially lower income advocates, that it was really important if we are going to be automatically enrolling people into this program at a 5% default setting rate, that it was important that it be designed as a Roth so that people could get their money out tax and penalty free in cases of emergency. So for example, if you, you know, your car breaks down and you won't be able to get to your job if you can't fix your car and you're going to lose your job if you can't fix your car. We wanted those funds to be accessible in those kinds of cases, especially since we're talking about a population that is not only, you know, many of whom are not only first time investors but first time savers.

In some cases you don't need a bank account actually to have a cal savers account. So we're, you know, we're going to be serving a population of people, some of whom have been unbanked. And then a couple of other things that we did. The first $1,000 of contributions are defaulted into a money market fund. We call it a capital preservation fund, which is intended to be lower risks so that if a participant has a need to access those funds in the first year, that most of that principal ought to be there regardless of what's going on in the markets. And then perhaps most importantly, workers opt out entirely if they feel it's inappropriate for them to participate at this time based on their personal family budget, they can opt out, they can take their contribution rate all the way down to zero if they want to, or 1% or 2% whatever's appropriate for them.

So we were really designed it so that it can really work for whatever the financial situation is of any of our participants. And what the research shows is that with automatic enrollment, people tend to stay in and you know, continue participation, not opting out regardless of income levels. So, especially when you're talking about default rates that are, you know, 5% or lower like ours. So, you know, we, we also chose that 5% rate based on some research done by Pew and others showing that there's very, very little sensitivity in terms of the opt out rate between us 3% default setting and a 5% default setting. So understanding that people will be substantially better off with a 5% rate as compared to a 3% rate. We, we felt very good about making that the default setting. So we tried to infuse sensitivity to the range of cashflow statuses amongst this population into everything that we do.


Rick Unser:    09:06    No, I, I liked the fact that that first thousand stays safe. I mean, one of the things we've talked about a couple of times on the podcast and one of the things that I've kind of taken on as a, uh, a little bit of a pet project is raising that awareness of emergency savings. And, and I think that does feel a lot like that to me where it's like, hey, if there is that short term need that, not that we want to encourage people to be, you know, rating their retirement assets. But certainly there is that a little feeling of security for somebody who's maybe new to this or doing this for the first time, that will help them be a little bit more confident with staying in the program, participating and then hopefully over the years accumulating more dollars than they would have had they not felt comfortable even getting started. And I think that's, that's a big emotional thing in my mind.


Katie Selenski:    09:55    Yeah, absolutely. And we were mindful of that and I think we, we reached a pretty good balance after a lot of really good hard work intensive work with the stakeholders during the regulatory development phase.


Rick Unser:    10:09    No, I, I like that aspect of it. Um, one of thing you said in your mandate that I, that I wanted to make sure I heard your right on and, and certainly, and if I did, we'd love to get you to expand upon is that as you were talking about the mandate, I think I heard you say that the mandate is not that employers have to use cal savers, but the mandate was that they offer a plan, whether it's a private market plan, which we might think of as a 401k or four, three B or other more traditional type of, you know, quote unquote retirement plan. Did I hear you right on that or, or, or no,


Katie Selenski:    10:44    absolutely. Yes. And I want to, thanks for bringing that up again, I want to be very, very clear about that, especially to your audience. That the mandate is that employers with five or more employees that don't already offer something, either start offering something off the private market. 401K four, three BS, step simple. You know, there's a whole range of qualified plans or if they don't want to do that, then tell favors is here to provide that basically the public option. And I just want to be very clear about this. You know, we're, we're excited to see what kind of innovation might results from that mandate in the industry. And if the results of our requirement is that the, you know, financial services industry innovates and creates kind of better, cheaper, more appealing plans for small businesses and then those small businesses choose to go with, with one of those plans instead of cal favors.


That would be perfectly great from our perspective, especially if that's a 401k with, you know, higher contribution limits and the possibility for an employer match because as a Roth Ira for the default setting, you know, $6,000 you know, contribution limit for, for most of our working aged people and, and no possibility for employer match with cal savers. So I started having some great conversations with folks in industry about, you know, how we might actually be able to work together to measure the potential bump that the private market might see as a result of this state law existing. Because we made it very sincerely when we say that we're going to measure our success, not just by the number of participants in cal savers, but by the number of people who have new access more broadly. So we would love a way to measure the increase that results in in the private sector. And we will happily take some credit for that too. So yeah, I want to be very clear about that.

Rick Unser:    12:35    And, and it sounds like you guys have put a lot of thought into this. Obviously you've spoken to a lot of groups. I'd be curious, what have you heard from employers that don't offer a 401k plan or other more traditional workplace retirement plan that has either prevented them or, I mean, I'm not sure what the right word is here, but current state is they don't have a plan. There has to have been some process of, oh, we just haven't gotten around to that yet. I mean, I, I'm sure there's some of that, but I'm also sure there's some people that have some pretty strong opinions that will know I don't offer a 401k or CEP or other arrangement because of x, y, and Z. Yeah,

Katie Selenski:    13:18    absolutely. There's, there's actually some really solid survey research on this. That was one of the foundations of the design of this program. And so a or P and small business majority did a survey a few years ago, found three really concrete reasons that small business owners cite for not offering plans. And the reason, Rick, I'm talking about small business owners so much, is that two thirds of our seven and a half million Californians that we think are going to have new access as a result of cal saver's work for small businesses. So that's why we focus so much on that. So the three reasons that the small businesses site for not offering plans currently, number one, just simply the fees that are charged to employers by a lot of those private plans just for setting up 401k or a, an employer sponsored plan. Number two, the administrative burden and sort of the research complexity of figuring it out, which one should I offer and you know, how do I go about on an ongoing basis administering it and and complying with all the requirements.


And I'm three the fiduciary liability that comes with sponsoring a plan by the employer. So those are the three things that we hear repeatedly and cal savers addresses all three of those. We have no fees for the employer, we are trying to make this as simple as humanly possible for the employers to facilitate. And we've taken them out of a large portion of the administrative part and then three, they are not fiduciaries, these are not employer sponsored plans. So they are not at fiduciaries for the program and that, you know, that isn't to say that all small business owners site all three of those, right? There may be some employers out there that are fine with the fiduciary liability but just you know, can't handle the fees or the administrative complexity. And for those employers I think they may be more likely to respond to innovation in the private market. I think that to the extent that some employers are just afraid of the fiduciary liability, then you know it may be hard to entice them from the private market perspective just by, you know, reducing fees or eliminating fees and complexity. But those are the three things. So we're happy to kind of provide an option that addresses all three of those for small business owners.

Rick Unser:    15:32    And, and I'd love for you to expand upon the type of businesses that you think would be likely participants in cal sabers or maybe other state programs. I mean, on prior podcasts I've talked about, hey, you know, you've got the family that owns the local liquor store, you've got the family that owns maybe your, you know, convenience mart or whatever it might be. But in my mind, when I think about the ideal candidate or the ideal type of employee earlier with, you know, maybe five or more employees that would be participating in a program like that, I don't know. To me, that's kind of what comes to mind. Am I going down the right path there or is there maybe a better way to think about, yeah, these are the types of employers or these are the types of small businesses that we're trying to provide a solution for.

Katie Selenski:    16:22    Yeah. Well I could give you a couple of answers to that. Just narratively, you know, we just wrapped up a pilot. Happy to kind of talk about that more during our conversation here so we can kind of describe the diversity of employers in the pilot. It's everything from you know, mom and pop shop to kind of like what you're describing to you know, much larger staffing companies, catering companies, you know, companies that employee kind of seasonal employees or are temporary employees. So there's kind of everything actually in there. But from a kind of Beta perspective, I'll just give you a breakdown of the sizes of employers to start with. As you know, Rick, we've got a three year rollout of our mandate here in California and the deadlines for compliance roll out according to a employer size. So the first deadline for employers to comply is, is in a year from now, June 30th, 2020 and that for employers with more than 100 employees, and we think that we estimate there are about 8,000 of them in the state.


So it's only about 3% of our volume of employers. But they employ what we think is about 3.3 million employees. And that's about, that's near half of our total pool of the seven and a half million employees. And the second deadline, which is June 30th, 2021 that's for employers with more than 50 and less than a hundred employees. That's thousand employers. So that's 5% of our employer volume. And they employ just 10% 800,000 employees. And then in the third year, the third deadline, June 30th, 2022 that's 271 employers. So 92% of our volume of employee earn are between five and 50 employees. So the huge volume of the employees are in that really small size bucket. And again, that's about 3.2 million employees or 43% of our populations. So you can see, you know, it's really diverse. So it's not just obviously by the volume of employers, it's a whole lot of really quite small businesses.


But there are still, you know, 8,000 employers this year that we're going to be focused on who have more than a hundred employees. And for some reason I have not managed to offer a plan today. So that could be any one of those three reasons that we talked about earlier. Fees, administrative burden, or the fiduciary liability. So it'll be really interesting to see as we engage with them more closely over the next couple of years, you know, what is the character of those employers and how are they going to respond to the, to the mandate. Are they gonna go out and shop for a plan or are they gonna join us here at cal savers?


Rick Unser:    19:06    Well, I mean those are great numbers also. Yeah, a little surprising. I would not have guessed that 8,000 employers with more than a hundred employees don't have some type of retirement plan set up for, you know, just, just for employees. That's, that's a great stat.


Katie Selenski:    19:23    Not Interesting. Yeah, that's, you know, almost half of our employees are working for a company like that. So look forward to hopefully coming back to your podcast next year and reporting and reporting back on what we learned about them.


Rick Unser:    19:34    Yeah, no that would, we'd love to hear it. I mean you've shared a ton of great stuff and I really hope that cal sabers and other state plans fill that very important void of or help encourage folks to, you know, adopt plans or, or participate in your program or other state programs. But I know from concept to where you guys are now of execution, it hasn't always been a smooth ride and I would love for you maybe just to give us some of the ups and downs along the way of going from hey, we've got this great idea that we think is going to help with coverage to now where you guys sit, which is actually being able to open a plan and have employers in their employ. You start participating in saving.

Katie Selenski:    20:19    Yeah, absolutely. Well. So in our, at our big statewide launch last week, we were so excited to have join us treasure Fiona Ma who's the chair of our board and also Senator Kevin De Leon who was the bill sponsor and really created cal savers. And I mentioned that because he started thinking about this and looking around at the problem of retirement insecurity in the state over 10 years ago. That's when he started, you know, looking at this problem, studying it, working with stake holders in the state and working very closely with, with policy experts in d c some of whom had tried to solve this problem at the national level and didn't see success there. So we're very grateful for the help and support and advice and the folks, the experts in DC for helping us. But you know, just mind in that, because this has been a long road, like you said, 10 years in the making.


The first version of the legislation was passed in 2012 and that really set up the bones of the program and then it required a feasibility study be done to show that this could be done. At no tax payer expense and as a reminder to your your audience, we were doing all of this without costing a single cent to taxpayers. We are self sufficient based on low fees on our savers and will repay the startup loan in the next few years. So the feasibility study was done. The board had to raise philanthropic money to pay for that because not even the feasibility study could cost government money. And then the final version of senator daily on his bill was passed in the fall of 2016 so last time you and I spoke was back in 2017 not long after I was appointed in the spring and I'm actually quite proud of the speed with which we've gotten from there to here.


Then we did take our time on the policy design because we wanted to engage with stakeholders really, really carefully, especially on some of those issues that we've already talked about or example Ross versus traditional for the default setting, what that default contribution rate should be, whether or not we should have auto escalation, the investment lineup, all of that. We really took our time with engaging with all of those stakeholders. And in addition with the employer community, you know, we heard from the chambers and small business majority and many other employer organizations that it was really important that this be really, really simple for employers and that we take them out of the kind of administrative process as much as possible. So we were really happy to have been able to accommodate most of those requests from the employer community. But so that's all good work that we're really proud of.


And then otherwise, in terms of challenges, I think, you know, procurement takes a long time state procurement as a person who's new to working on the inside of state government. That's been a fascinating journey for me to learn about. And otherwise, you know, most of the good stuff is, you know, in the weeds of thinking about how do we engage the payroll services industry in this endeavor. So that we can make it even more easy for employers to facilitate. And you know, how can we develop technology to make it essentially automatic so that the employers really barely have to do anything at all. So those are the challenges around, you know, the nuts and bolts operative questions on, on payroll and, and you know, what this looks like from the employer perspective or are there things that we're having a lot of fun digging into and I think we'll see a lot of good progress in the next several months on that stuff.


Rick Unser:    24:55    You know, it's not often that I hear people talk about payroll being fun, so I'm glad you're enjoying it at this point. One thing you've said a bunch of times is that you guys want to make this program is easy on employers and I, and I, I love that sentiment, I appreciate that. But I do think that for employers that already have 401k or other traditional, you know, private plans or workplace plans, I think there's definitely been some confusion around does this impact us? Do we have to do anything? So can you maybe just reiterate, if an employer has a plan already and they have employees in California, by definition, are they good to go and there's no further action needed on their end? Or are there things that you guys will want them to do or a notice or anything like that that they will need to file or submit stating that they have a plan already and they've satisfied the mandate or something of that nature?


Katie Selenski:    25:53    Got It. Yeah, absolutely. So first I think it'll help to just explain what our process is. So we start with the list of all employers in the state that we get from EDD, the Employment Development Department, and we call out all of those employers that have fewer than five employees. And we have a method for determining sort of the average number of employees throughout the year based on looking at the trailing four quarters of filings to EDD. So we take out all those guys, and then the second step is we take the u s DOL, the EBS, a form 5,500 database. So that's the database of filers who have reported some kind of qualified plan to the US Department of Labor. And we take all of them off the list. And then we're left with essentially our outreach list for employers. And what we're going to do is beginning around the end of August, is start sending notices via both email and mail to employers who we believe are subject to the mandate because they have five or more employees and don't appear to offer a plan, at least as reported to the DOL.


And we know that Form 5500 databases imperfect. So we're ready for that. So we'll send those notices. And essentially what the notice will say is if you think that you're subject to the mandate, so come register or let us know that you're exempt because you're offering some kind of other private market plan. Now we're not requiring that exempt employers come self-report. We're politely requesting it. And the issue is that if they are exempt, because they already offer some kind of qualified plan and they've made it onto our list for some reason, if they don't come and tell us that they're exempt voluntarily, then we're just going to keep sending the letters. So we do hope that people will take the 30 seconds and literally it is 30 seconds. They just come on, enter their access code, check the box for, you know, whether it's a four oh oh three B or a four one k or a sep or simple or whatever it is, and just attest that it's true. Submit. So if they don't do that, then we'll keep sending letters and eventually when we get into the enforcement phase, then you know, we would think that that would motivate people to, to let us know. So it's pretty simple, but we're going to try to get as many of those exempt employers off the list so that they never have to get a letter from us in the first place.


Rick Unser:    28:08    Yeah, and I can see for some employers too, where maybe there's been mergers or acquisitions involved or you have companies that have multiple divisions or multiple tax ids that are associated with their organization that have employees, but they all roll up to one plan. There might be some confusion around the employer side of it, but it sounds like that will all be sort of fleshed out. What is the stick behind this? So you know, to the extent that someone goes through this and takes no action, whether it's they didn't get the memo or what, or, or just, you know, maybe they're that just, hey, nobody's going to tell me what I have to do. I don't know what the reasons are, but, but what is that stick? Is that a, is it a fine, is it, what does that look like?


Katie Selenski:    28:54    It is, yeah. And the legislation that was passed in 2016 the legislature did include a fine structure. So if you haven't replied to your first notice of noncompliance, the first fine is $250 per employee. And then first sustained noncompliance for an additional 90 days. There's an additional $500 fine per employee. So essentially in a nutshell for sustained noncompliance, it's up to $750 per employee. So that's a, we think a pretty powerful, uh, Yep


Rick Unser:    29:29    That's a big stick!


Katie Selenski:    29:29    Yeah, it's a big stick. And, and you know, again, we are designing and operating this program so that it's easy for employers to use and really addresses the challenges that they have said are there offering something. So we are very enthusiastic about it and hope that the appeal of the program will be powerful also so that we have a very small pool of employers to engage with on, on the enforcement side down the road.


Rick Unser:    29:56    Sure. And I know one of the thought is, I was kind of thinking through this, and I want to make sure I'm thinking about this right. To the extent someone has their business headquarters in one of our neighbor states, maybe Nevada or Oregon or Arizona, whatever, and they have five or more employees in a division and a subsidiary, a whatever that is doing business in California or that has California residents. As employees do those types of subsidiaries or other affiliated organizations to the extent that they don't have a plan that they offer, would they be part of the mandate? I guess


Katie Selenski:    30:35    so the, the way that we define an eligible employer is that if you have at least five California based employees, at least one of whom is age 18 which is the eligibility factor for the employees, and you don't sponsor a qualified plan, then you're required to register for cal savers. So that means that if you're headquartered in Nevada, but you have at least five California workers, one of whom is 18 and they're, you know, reporting income to EDD in California, then that entity is subject to the mandate.


Rick Unser:    31:11    Got It. And I think there's probably a logical outcome here too. A lot of this for employers that are operating in multiple states, it's, hey, the time has probably come to figure something out and offer a plan. But maybe for some of those who don't want to go down the private market route and they're operating in multiple states, et cetera. I'm sure you guys have given this some, some thought at the state program level, as more of these state programs come online, is there going to be some way that that employer operating in multiple states that maybe has employees that would be subject to some of these various state programs? Is there going to be an easy way to kind of figure all that out or is that going to be a just something the employer needs to take on as a, you know, another thing they have to check off their list as they, as they think about compliance and, and just doing business in various states?


Katie Selenski:    32:08    Yeah. Well, well, let me say that. So there are three states right now that are up and operational, California, Oregon and Illinois. Uh, we're all operated out of our state treasurers offices. And coincidentally we all ended up hiring through independent competitive bids, the same program administrator. And that's a census. So there's some uniformity just by virtue of having the same provider. But even beyond that, even if we had hired different providers, the bones of these three state programs are very, very similar. You know, they're all structured as Roth IRAs for the default. We, in fact I'll have kind of the same contribution default contributions setting 5% so I think that by and large, the requirements for a multistate employer's perspective are pretty close to universal. Now the couple of couple of distinctions, the biggest one is the thresholds that each of those three states defines for their employer requirement.

So as I said here in California, it's five or more employees in Oregon to go all the way down to one. So all employers in Oregon and then an Illinois 25 or more. That's probably the biggest distinction between the programs. We also have some slightly different investment options and I can talk more about the other distinctions and in a minute here, but just to make the point that for multi-state employers, I think, you know, it's a very similar program offering across these states. So far the fact that we're working with the same record keeper and administrator I think is also very helpful. In a sense. This has done a fantastic job of meeting the needs of all of these three states that have different sort of cultural contexts. Um, and they've, they've just done a, a great job and we found that they, you know, have a great kind of customer service operation for the employers, dedicated lines for them to, to call into. And I think as, as we see more multistate employers come on board, we have just a handful right now in California. We're figuring out the most efficient ways to, to serve their needs and that'll be an evolving process.

Rick Unser:    34:15    No, I, I think that makes sense. So you've provided some great context on kind of why state programs got started and you know, how we got to the point of where we are. I know specifically in California through cal savers, July 1st was the launch. I knew you'd been real busy with all of that. Um, so, so I guess how's that going so far? What types of questions are you getting? What would you want employers to know about what's going on at cal savers and, uh, just things to either do or think about or pay attention to in, you know, whether it's in the immediate or in the more intermediate future.

Katie Selenski:    34:53    Yes, yes. We are thrilled to have finally opened fully statewide on July 1st so we had a, a great event here at the State Treasurer's office with Treasurer Moz, Senator de Leon and Oliver, our stakeholder partners, including some of our pilot employers, joined us and spoke very eloquently about their experience. We launched our limited scope pilot back at the end of November, 2018 under the leadership of, of treasurer John Chung, who worked on this program for many years before he left office. So we're grateful for his, his leadership and we, we ran a great pilot with about 60 employers that represented the kind of diversity of the state in terms of geography and industry and size, employee composition, you know, mechanisms for doing payroll. And it was a really, really great little small pilot that we kept small intentionally because we wanted to really closely observe their experiences and you know, make tweaks to the system based on, on their feedback.

So we're happy to do that. And you know, really the main thing that we learned is, is very, very simple and that is that it works. You know, cal savers is working, it's when you give people a simple automatic low fee portable way to save, save their own money and save for their futures, they will do it. And so we're, we're seeing that research from behavioral economics actually bear out here. In our pilot we had about a 21% opt out rate in the pilot, which is actually lower than we expected. We had an average contribution rate of 4.93% which is just under the default rate of 5% which shows us that, you know, some people are going in there and actively adjusting their rates up and maybe a few more or adjusting it down. But we're, we're fine with that because we'd rather see them adjust it down and then opt out entirely.

And then the average monthly contribution is about $91 and that's across all full time, part time, seasonal, temporary employee basis. So you know, looking at something on the order of about a thousand dollars a year at this point for this, for this pilot tool. And so, you know, we're really, really happy to already have thousands of people saving and proving that it works. And you know, in terms of kind of operations and things that we've learned, I think again, just really trying to dig in on that. And you know, payroll technology integration and a census has done an amazing job and they're their tech team there of pushing us forward. We've invited all of the payroll providers to come work with us, but really looking forward to seeing what we can get adopted in terms of that technology in the next several months. But then, you know, really the, the main point that I would have for the employer community is that, you know, as of last Monday, as of July 1st we are open for business.

Employers do not have to wait for their deadline to begin their participation. We encourage them to go to cal right now today to get started because we know that time is really our very, very best friend when it comes to longterm investing. And so the sooner that they get registered and allow their employees access, the sooner their employees can get started on a path to retirement security or of course if they want to choose the other path and offer a private plan that that's, that's great too. And we would just encourage folks to get started on on that decision making process now and check out our website and the easy tools that we offer there.


Rick Unser:    38:20    It don't cram for the test the night before the deadline, right?


Katie Selenski:    38:23    Yeah, yeah, please. And help us out a little too, because we'd rather have a smooth, smooth adoption.


Rick Unser:    38:28    Right now, I'm with you in terms of a couple of the specifics. I mean obviously you've talked about the Roth Ira side of it already. You've talked about the automatic side of it. What else should maybe employees expect? So as employers are getting ready to turn this on for some of their employees, what does that experience look like? Um, maybe investment options or access or statements. Is that sort of, hey, is that usual and customary around what people might anticipate of, hey, we'll have website access, we get quarterly statements if we want? Things like that.


Katie Selenski:    39:03    Yeah. Well, and I'll say that we're really proud. We're trying really hard to not be, you know, stuffy bureaucrats from Sacramento about this program. We're, we're trying to make this really accessible, you know, meet the needs, serve the needs of our, of our participants in our savers. So, you know, we, I don't know if, I don't think I mentioned this before, of our seven and a half million potential participants, we know that it's a really diverse group. Two thirds of them are people of color and fully 48% are Latino. So we are, you know, really doing everything we can to be culturally competent about the design of the program, the implementation of the program and you know, and how we interface with folks. So in terms of what they can expect, we have a bilingual mobile app that we're really excited about. Hopefully people will download that and use it.


We know that a lot of lower income people don't have a computer or a laptop at home, but pretty much, you know, most people are walking around with a phone in their pocket. So that was one way that we made it accessible. You know, we have all of our materials are available in multiple languages. Our website is trilingual at this point. Chinese, Spanish and English, the customer service call center is available in any language you can possibly imagine. And so we're, we're doing everything we can to, you know, make it accessible from a tactical perspective. Once we get the roster of employees from the employer through their registration process, we, the program immediately send them their information packet. And we do that electronically if we have their email address or a on paper. If we don't have an email address for them and you know, that gives them all the information about it, it disclosures, all the different options.


And what we say in that package is if you don't opt out within 30 days of receiving this, then you will be automatically enrolled at these kind of default settings. So 5% contribution rate, Ross IRA and the default investment options. Again, the first thousand dollars going into the capital preservation fondant subsequent dollars going into target date fund appropriate to their age. And of course they can adjust their rates up and down. They can go in and sort of like claim their account and you know, assigned beneficiaries and you know, make adjustments, customize it if they want to see, see all of their information. But we're really trying to design it with the assumption that a whole lot of people are not going to go in there and engage immediately. And it may, it may be quite awhile before some of them do. So what are the default settings are designed with, you know, kind of the larger pool in mind and to work for, for the largest number of people.

Otherwise from the employee perspective, you know, we are very, very acutely aware of that. Our success is going to really depend on how well we do marketing and outreach and education to both the employer community and the employee you community. So we are working really hard on us from grassroots effort to reach people in their communities through their trusted influencers and, and their community leaders and really get the word out. We have very, very little funding here to buy advertising and so we're really relying on a stakeholder kind of community outreach approach and would welcome the participation of leaders in any industry as well to help educate communities to the extent that any of your listeners are interested in engaging with us.


Rick Unser:    42:19    Perfect. And I'll be sure to include your contact info in the, in the notes. So if anybody wants to reach out, um, I know you'd be happy to chat with them.


Katie Selenski:    42:27    Great. Thank you so much.


Rick Unser:    42:28    Let, let me take one turn to the dark side here. And I know with smaller employers sometimes there's some challenges with cashflow and challenges with the business. And I know one thing that in the 401k world that pops up every now and then is an employer starts run into some challenges. They've got these deductions from employees that should be going into the 401k plan and instead of sending them off to the 401k, they get used to keep the lights on or to pay salaries or whatever. And there's usually some very strong rationales for why the business owner decided to do that. But in the end, that's not a good thing. There's several rules and laws and enforcement actions in place to prevent or hopefully deter people from doing that. Is there a similar mechanism or, I mean, is there any way that could happen in whether it's cal sabers or some of the other state programs or are things set up maybe slightly differently?

Katie Selenski:    43:32    Yeah, we, we would call that wage theft. Um, and


Rick Unser:    43:35    Let's not sugarcoat it!

Katie Selenski:    43:37    Yeah, yeah. That's the way it's staffed. And you know, we thought about that a lot during our regulatory development process. You know, in consultation with our lawyers discovered that we didn't need to add any new law or regulation to the existing wage theft law in California. So if we are made aware of that, we will absolutely be reporting that and do, do what we need to do to support, you know, any enforcement of those laws. Beyond that, I think in our print a back end platform we'll be seeing when people are enrolled and contributing and then if those contributions cease in the absence of the employee having opted out or changed their setting or turned it off, we'll see that and we will be able to flag that and you know include that in communications to the employers. I think, you know, there are probably instances in which that's an accident, but like you're saying in the darker scenario, I think that that's what the wage theft laws are there prevent and then to punish as well. So we'll be, as we as we encounter those, hopefully not very often, but we will be engaging with the other agencies in the state that enforce those law.


Rick Unser:    44:43    No, I appreciate you indulging me on that one.


Katie Selenski:    44:47    No, no it's not, it's not an indulgence. It's very serious and our stakeholders are gonna you know, hold their feet to the fire on making sure that we have all the proper, you know, consumer protections in place and, and we are very confident about all of those measures that we've taken.


Rick Unser:    45:00    As you think about, you know, the next step here of, you know, hey, now you're administering this program, it's live, you've got employers participating, you've got employees making salary contributions. Are there any misperceptions out there or are any, are there any things that, you know, you're hearing from either the employer community or the, you know, the retirement community that maybe people are concerned about or people are kind of lobbying out there as criticisms or, or other thoughts around state programs that you'd like to either clear up or have an opportunity to sort of present your side of things on?


Katie Selenski:    45:41    Sure. Yeah. There. You know, there are, there's not a lot, but there are a couple of greatest tips I would say. You know, number one we just, we always just want to clarify, there are no employer fees for facilitating cal flavors. So that's, that's one that often we hear a sigh of relief out there and the, and they would play or community when we remind people of that. So there's that one. But in terms of sort of more kind of wild rumors, you know, that we hear every now and then that, you know, the state is just doing this either to prop up the public pension funds, unfunded liability or somehow that we will miss, manage these funds and end up with, you know, an underfunded situation. But you know, just to be very, very clear, this has nothing to do with public pension funds.


And importantly, this is not a defined benefit arrangement, right? State and taxpayers have zero liability for fluctuations in the market returns here, right? So these are individually owned accounts. These are individually owned IRAs. The employees, the participants assume all of the risk in terms of the investment returns. So the state, it's written into our statute in black and white 10 times over. We have really no risk in terms of the market fluctuations there. And then of course, I just laugh when people put out the, you know, we're, we're just gonna feel people's money to pay off the calpers unfunded liability, especially if it's just so, it's so absurd and ridiculous. But those are a couple of frequent ones. And I think, I think that's about it. We're lucky. I think that we're in a position where we've designed a really kind of simple intuitive program and when, when we have the opportunity to explain it, to take a few minutes to explain it, people are pretty excited about it and it's gonna go a long way towards solving some existing hurdles for, for coverage and access there. I think we're in a good position and don't have too many wild accusations thrown at us too often.


Rick Unser:    47:35    That's always a good thing. Let me have you make a couple of forward looking comments here or are there other changes or enhancements that are coming to cal savers in the immediate or maybe longer term future that you guys are contemplating or we'll be rolling out and then also looking down the road if the state programs do a good job here, do you see the potential that a national program or some type of federal program might emerge at some point in time?


Katie Selenski:    48:08    Sure. Okay. I'll take the first one first. Yeah, very excited to announce that we have a couple of new features coming out, so I think I've already said that at the end of the year we'll have the traditional IRA option available for individuals that may not want to use the Ros. So that's exciting. And then in September we are opening up for individual participants to opt in. And by that I mean, you know self-employed Gig workers, 10 99 workers, but also individuals who may have our traditional employment situation, but who worked for a non mandated employer. All of these folks starting in September, we'll be able to opt themselves in by directly going to cal and just signing up for an account and linking it to their bank account if they want to do that. And of course you don't get the power of the automatic enrollment or the nudge.


So this will rely on people knowing about us and proactively going to the website. But for those people they will have an option through cal savers in September. We're excited about that. And another new one, we just, the board just a couple months ago added an ESG investment option, environmentally socially responsible fund. Again, it's not the default setting, but for people who are interested in that, that's available now through Newton is the provider there. Whereas state street is providing the other four investment options. So those are a few things. I think we also have kind of a holding area of Oh kinds of fun design elements that either we think of here at the staff and board level or that people bring to us and we put them in the Kelsey Evers 2.0 bucket four for consideration down the line. And kind of getting to your second question on national trends.


I think one thing that all of the states are, are thinking about and that we'll be thinking about in the next couple of years is you know the decumulation phase and you know, retirement income options. You know, what might we be able to do on that? For right now we're very busy just getting the program up and running and getting people saving and building assets. But that'll be a conversation that we'll be eager to have some board education sessions around and you know, think very carefully over the next several years about what, if anything the board may want to do with that. I know that some of the other states are thinking about that as well and some of our national thought partners are going to be helpful in that. So, in terms of other of national issues, you know, we watch very closely everything that's going on in the US Congress this year with the secure act open map.


That's interesting to us. We are supportive of that, that that's just another, another pathway there for some employers to increase coverage. So we're supportive of that. I think in terms of possibilities for a, you know, federal employer mandate or a federal program like cal savers, we, you know, we've had, we've been part of some discussions with staffers on the hill around that and it seems unlikely that we'll see major action on that in the next year or so. But we are watching those, monitoring those conversations really closely and are always happy to kind of offer the insights that we in the states have have developed because we're actually doing it right now. So happy to continue those conversations and engage as they end unfolds.


Rick Unser:    51:21    Awesome. Um, maybe last thing here, you mentioned that you guys are going to be doing a lot of measurement of the program and how things are, are going. How would you define success? You know, so we get to July 1st, 2020 or or whatever. I don't want to artificially put a timeline on it, but are there some metrics that you're like, wow, you know, if we can get to x or y around employers that are participating or I don't know. I guess as I, as I'm thinking about a couple things, there are data points there. I'd be curious to see how you guys are planning to measure that and then is that going to be reported out to the broader community at some frequency or, or how are you guys planning to share some of that data?


Katie Selenski:    52:07    Yes, absolutely. Will turning this month we will be posting monthly participation reports on our website, website, website where all of our board meeting materials are posted. We'll be, every month we'll be putting a participation report. So we're all about transparency. We want the community, taxpayers, stakeholders, the market. We want everybody to see how we're doing and we think we'll have a lot to be proud of. And I think it'll be clear in the data to show where the mile markers are in terms of the employer onboarding process, you know, the number of registered employers versus the number that are actually facilitating the payroll deductions. And you know, what's the sticking point between those two milestones in terms of, you know, our aspirations. We, you know, we're here to make sure that all work in California and is have access to retirement savings. So either because they work for a mandated employer, which is now facilitating cal savers or because they're an individual self employed gig worker that that never had access before and they've opted themselves in.


Really, you know, we're here to open up access to everyone. And I read to you the numbers earlier in this conversation around the estimate of number of employers in each of those buckets. But you know, we'll, we'll be measuring and reporting out as much information as we can on how many of those employers are adopting cal savers versus going out to get private market plans. And I, as I said, we're going to work with industry associations as much as we can to get that access from the private market as well. So you know over the next three years as all of these deadlines for compliance roll out, we hope that at the end of that that we have a full participation, full access either through cal savers or through through private market plans and you know, we want to see millions of new hardworking Californians saving for their futures and on a path to retirement security.


Rick Unser:    54:01    Awesome. Is there anything we missed or is there anything that you wanted to just provide as closing comments in might be helpful as as people are thinking about state programs, either maybe specific to cal savers or just the broader movement associated with state programs?


Katie Selenski:    54:18    Yeah, I will just say this is a program that aims to increase coverage, right? Whether that's through our program or through spring innovation and in the private sector and action in the private market and we're here to address and to really serve that half of working Californians who don't have anything, no assets saved for retirement. Right. We're here for them. And that's, that's a mission that we take very, very seriously. That's a problem not only from kind of a, an obvious moral standpoint that, you know, we, everyone in society should care about, you know, elder poverty. It's also a problem from a fiscal perspective, right? That to the extent that we have impoverished elders that are reliant on, on public assistance, that is, that's a strain on public resources that that could be used for, for other needs too. So from multiple perspectives, we are really motivated to, to solve this problem. And you know, in, in the fifth largest economy in the world with so much wealth and so much advanced technology and advanced corporate activity, we ought to be able to, to solve this problem. And I think we're proving already that there are simple solutions that that can, can address it. So we're just excited to increase access and coverage and would love to engage with anyone in the industry or in communities to help us get the word out and to educate communities about cal savers.


Rick Unser:    55:51    Awesome. Well, I really appreciate all the time you spent and I appreciate everything you shared. I think there was a lot of great information for really anyone, uh, employers or retirement industry, et cetera. So appreciate you taking the time to, to clear up some confusion and maybe things that people have heard that might not be accurate. So excellent. And I will hopefully have an opportunity to chat with you maybe next year as you guys have a full year under your belt and can chat a little bit more about things you've learned and some of the results in, in things, whether it's employers or other states might take away from that.


Katie Selenski:    56:27    Well, thanks so much Rick. It's, it's great to talk with you again and yes, we'll, we'd love any opportunity to come back and talk and, you know, share insights and um, any, anytime any of your audience members or listenership have questions or want to engage, they can feel free to reach out to me directly anytime.

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