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When you get paid from your job, you will notice 7.65% is deducted from your wage as a FICA tax. This is 6.2% that is contributed to Social Security and 1.45% that is contributed to Medicare programs. What you pay is matched by your employer, rendering a total of 15.3% of your gross wage, paid to support the Federal Government's programs.
Just passed into law by Jerry Brown, California now has SB 1234. SB 1234 is mandatory for any company with as few as 5 employees and requires either a 401k Plan, or enrolling in the state plan. Enrollment is mandatory, and everyone enrolled with a deduction amount of 3%, which the State will wisely select people to invest it for you. If you take your money back, you will be penalized.
After enrolling, employees do have the right to adjust the amount contributed and opt out of the program, but employees will have to do the legwork to understand their account well enough to do the opt out. An employer cannot simply say, we don't do that.
There's no match, no control over investments, no loan opportunity, no access to your funds until you reach retirement age, when you will pay income tax on both your portion you put in, as well as the gains that may have been capital had you invested it differently.
The reason give as to why is to help poor workers save money for retirement and a prudent plan. Yet the flexibility is less than what a traditional or Roth IRA could offer anyone at a provider of their choosing.
Really, the only thing it offers is money to go to the State of California, as well as taking away the option of retiring in a different state with lower taxes like Florida or Texas and more red tape for every California company.
This sounds much more like a savings plan not like SS. SS is an insurance plan that can if you meet certainly perameters provide an income over some period of time
Yes, this is the stated reason. With a 3% deduction there's no way it can actually achieve this in any meaningful way.
Maybe the people who designed the program don't understand that, or maybe it's a way to get the elephant's nose under the tent, I don't know.
Many companies now force a 3% auto sign up contribution rate for new employees in their 401k plan. It's really not for the benefit of that specific employee but rather to get participation rates up for the entire plan so they don't fail testing requirements. With the state plan as you've pointed out 3% ain't getting you where you need to be
The reason give as to why is to help poor workers save money for retirement and a prudent plan. Yet the flexibility is less than what a traditional or Roth IRA could offer anyone at a provider of their choosing.
"The reason give as to why is to help poor workers save money for retirement"
Do you mean poor savers/investors? I believe that the enactment of 401k plans is kind of recent and they thought that people would be responsible and save and invest for their retirement but that didn't turn out to be the case. Because people aren't putting money aside when people retire they depend on SS which most likely won't cover expenses so it seems they are trying to force retirement savings. Maybe not force but since people won't take initiative, they are setting it up so it's automatic and instead, people have to make the effort to get out. Requiring effort on the employee's part would increase the probability that people will save/invest for their future.
That's my take, I don't know. I kind of like the idea but think it needs to be more aggressive as fees are reasonable and as long as government keeps their hands out of the pot of money. That's the question.
"The reason give as to why is to help poor workers save money for retirement"
Do you mean poor savers/investors? I believe that the enactment of 401k plans is kind of recent and they thought that people would be responsible and save and invest for their retirement but that didn't turn out to be the case. Because people aren't putting money aside when people retire they depend on SS which most likely won't cover expenses so it seems they are trying to force retirement savings. Maybe not force but since people won't take initiative, they are setting it up so it's automatic and instead, people have to make the effort to get out. Requiring effort on the employee's part would increase the probability that people will save/invest for their future.
That's my take, I don't know. I kind of like the idea myself as long as government keeps their hands out of the pot of money. That's the question.
Remember, it's 3% of income for low income earners. Social Security doesn't pay much, and the contribution to this plan is only about 1/4 the contribution to Social Security, so the amount of income someone can expect from this when they retire is quite small. In its current form it doesn't make much sense. That's why I say it may be just a way to get started on the way to some non-stated goal.
Remember, it's 3% of income for low income earners. Social Security doesn't pay much, and the contribution to this plan is only about 1/4 the contribution to Social Security, so the amount of income someone can expect from this when they retire is quite small. In its current form it doesn't make much sense. That's why I say it may be just a way to get started on the way to some non-stated goal.
The above bill works in conjunction with SS. It's just another option if your employer doesn't offer a 401k
Remember, it's 3% of income for low income earners. Social Security doesn't pay much, and the contribution to this plan is only about 1/4 the contribution to Social Security, so the amount of income someone can expect from this when they retire is quite small. In its current form it doesn't make much sense. That's why I say it may be just a way to get started on the way to some non-stated goal.
Ok, I changed my post to say it needed to be more aggressive before reading this post. I just read that the program is aimed at workers who aren’t currently offered a savings plan through work — and who are much less likely to have any of their own retirement savings. Is it for low income earners only? A lot of people in the middle class are just as likely not to have retirement savings. Some savings is better than nothing.
The reason give as to why is to help poor workers save money for retirement ... ]
Do you mean poor savers/investors?
Way to cut to the bone there.
For many, effectively, most people, SS is the only retirement money they are going to be getting.
Lots of bumpkins have a hundred thou or so saved, but the difference between having $-0- and $100k having attained the age of 65 is effectively zero.
Quote:
Originally Posted by petch751
That's my take, I don't know. I kind of like the idea but think it needs to be more aggressive as fees are reasonable and as long as government keeps their hands out of the pot of money. That's the question.
No question.
There is supposed to be a "Trust Fund" to pay out the Boomers retirement, er, .... SS money, but it was spent by Reagan thru Bush II until SS became insolvent with Obama. Clinton's budget surpluses were only black numbers by including the SS "surplus."
I love to hate SS, but it effectively was forced retirement savings for a lot of my relatives who liked showing off their new cars, furniture, electronics, etc. but will whine and complain once they become dependent on that monthly SS check paid for by Millenials.
The chance that the CA "fund" goes untouched by state congresscritters wanting to "invest" it in regular state expenditures for more than a year? Zero. That 3% withholding rate is a tax increase. - It is a regressive tax.
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