CalSavers program: what to know about this retirement plan

Steven Johnson spent 19 years as a minimum wage worker for a Los Angeles moving company, lifting heavy furniture and suffering from three hernias along the way.

For the past decade, the 61-year-old has worked as a waiter and cook in busy kitchens.

Now the arthritis has swollen the knees. “I tried to hold on, getting cold,” Johnson said. But he had to cut it down to two days a week.

Johnson’s income last year: $ 11,000. As for retirement savings, he says, “That would be a big fat zero.”

His employers offered neither pensions nor 401 (k) plans.

Johnson is certainly not alone. About 52% of California private sector employees between the ages of 18 and 64 work for companies that have not offered either type of pension plan, the AARP reported in August.

There are 7.4 million people.

Business executives enjoy large retirement benefits, but over the decades, companies have abandoned defined benefit pensions that once guaranteed many basic workers a steady income until death. Voluntary 401 (k) plans replace them in some cases, but leave millions of workers vulnerable to stock market downturns. Others are unable to contribute due to their low wages.

Among the low and middle incomes, the fear of poverty among the elderly can be particularly acute. Eight out of 10 Californians who do not have access to an employer-provided pension plan earn less than $ 50,000 annually.

Although many government employees still receive pensions, as do many union members, and some private companies offer 401 (k) plans, widespread inequity has spurred California and many other states to fill the void by enacting state-sponsored pension programs for the private sector.

The Golden State initiative, CalSavers, requires companies without their own plans to upload their own employee lists. CalSavers then enrolls workers, automatically deducts 5% from payroll checks, and deposits it into a Roth individual retirement account. Workers can give up or increase or decrease the amount they hide.

“When you consider the low wages, the high cost of living, the debt burden,” CalSavers may not be “a panacea,” said Katie Selenski, executive director of the program. “But we can level the playing field.”

So far, 384,000 Californians have CalSavers accounts, with assets of $ 272 million. Employers with five or more workers had to sign up by June or set their own plans. Employers with one to five employees must comply by December 2025.

But the program, launched in 2019, could do little to help those already close to retirement age or those who can’t afford to save. Last year, 1 in 4 workers in the Los Angeles area earned $ 15 an hour or less – $ 31,200 per year with a full-time job – according to the United States Bureau of Labor Statistics.

More than a third of CalSavers eligible employees have given up. One was Johnson, struggling to survive with arthritic knees and a part-time income. He withdrew the $ 620 into his account. “I needed the extra money,” he said.

Clara Mesa is an editor for Sky Chefs at LAX.

Clara Mesa, 60, is a contractor for a company that provides in-flight beverages and beverages to LAX airlines. She fears she may not have enough savings to retire soon.

(Carolyn Cole / Los Angeles Times)

For 38 years, Clara Mesa, a single mother, worked on an assembly line, loading beverage carts at Los Angeles International Airport. Unable to afford an apartment, she pays $ 500 a month to live in an Inglewood garage and commute by bus.

At 60, on her feet all day, stress takes over. “Supervisors say, ‘Hurry up, hurry up,'” she said. “But I only have two hands. I’m not an octopus. “

However, Mesa, whose salary has gradually risen to $ 18 an hour, can’t imagine how he will be able to afford to retire. She has $ 20,000 in a 401 (k), but with rent, food, and bills, her savings would be gone “in the blink of an eye,” she told her.

Workers like Johnson and Mesa will receive Social Security benefits once they reach retirement age, but they can’t count on it being enough.

“Social security is a foundation,” testified Nari Rhee, director of the UC Berkeley Labor Center’s Retirement Security Program, in a federal hearing last year. But “the current average benefit of $ 1,500 per month is not enough to cover the basic needs of most retirees, given the cost of living.”

Rather than raising funding by raising the $ 147,000 cap on taxed wages, Congress raised the all-benefit age to 67 from 65, a challenge for blue-collar workers whose jobs are more likely to involve physical stress.

“Thirty years of work doesn’t pay more than 30 years of pension,” Ramsey Alwin, president and chief executive of the National Council on Aging, said at a recent symposium. “Since we’re all enjoying the gift of longevity, it doesn’t add up.”

More than a third of Americans in average health at age 65 are likely to live to age 90, according to current studies. To maintain their standard of living beyond 20-25 years of retirement, Californians will need savings equivalent to at least seven times their annual income by age 65, according to a UC Berkeley study.

Kerwin Garin, 64, moves from job to job, working as a chef for a temporary agency. He takes seven drugs “for various diseases,” he said. And he’s postponing a recommended cardiac appointment until he qualifies for Medicare.

If the Monterey Park resident retires, he doubts that Social Security benefits, along with a modest 401 (k) and a mere $ 150 per month pension from previous jobs, would fully cover his or her expenses, including rent, utilities, health care, student loans, car payments, and veterinary bills for your cat.

“I worry all the time,” he said. “I just need to keep working.”

Whenever possible, Garin takes the bus to his canteen concerts across the region to avoid increasing the 83,000 miles on his Chevy Cruze odometer.

His employer, Culinary Staffing Service, has enrolled its 920 employees, more than a quarter of whom are over 50, with CalSavers. The cooks, waiters and dishwashers, who work shifts in hospitals, universities and sports arenas, “are very happy to offer them a way to save money,” said Jessica Seastead, Chief Operating Officer.

The agency had not offered pension benefits before, he said, given the administrative burden and expense involved in setting up a 401 (k) program.

CalSavers, which doesn’t charge for its service, “holds your hand during the process and makes it easy,” he said. The automatic deductions also make savings affordable for workers without the paperwork required to sign up for a 401 (k), she said.

An AARP survey shows Americans are 15 times more likely to save for retirement when they can do so on the job. They are 20 times more likely if the program is automatic.

CalSavers “is good because most people don’t save money,” Garin said. The 5% subtracted from his paycheck means “I’ll have more to fall back on”.

Retirement benefits vary widely by occupation. High-turnover, low-wage sectors tend to disappoint older workers. According to 2020 census data, only 30 percent of U.S. restaurant and hotel workers had access to a floor, 38 percent of garbage collectors and sorters, and 62 percent of construction workers.

In contrast, 86% of professional and technical employees had a 401 (k) plan or retirement plan.

Latino and black workers are concentrated in jobs that are less likely to offer retirement benefits. “The story of retirement wealth in California is a story of racial inequality,” Rhee wrote in a UC Berkeley Labor Center report.

In the Golden State, 64 percent of Latino employees and 53 percent of black employees weren’t covered by a job plan before CalSavers, according to the latest data. This compares with 44% of Asian workers and 43% of white workers.

Meanwhile, hundreds of thousands of California workers with no immigration papers do not qualify for Social Security. And another group is mostly excluded from workplace retirement programs: about 1.4 million California self-employed, few of whom contribute to IRAs or take advantage of CalSavers’ individual enrollment option. Many job assignments for companies that circumvent traditional labor protections by claiming that their workers are “independent contractors” not “employees”.

Robert Moreno stands in front of a car with Uber and Lyft stickers.

Robert Moreno, 47, drives for Uber and Lyft in San Diego. He’s worried about retirement because companies don’t offer 401 (k) benefits.

(Margot Roosevelt / Los Angeles Times)

Robert Moreno, 47, drives for Uber and Lyft, en route to San Diego from his trailer in Potrero, more than an hour away. He picks up passengers from 11pm Friday to 3am Monday, taking a nap in his Honda Tucson between rides.

After gas, tolls, and maintenance, Moreno clears between $ 30,000 and $ 40,000 annually. The rest of the week he lives across the border in Mexico where housing is cheaper and he works with his wife building a small clothing business.

Lately Moreno has started worrying about retirement. The ride-hailing giants are not offering 401 (k) s, nor Moreno’s previous jobs at an investigative consulting firm and travel agency.

“Uber and Lyft are multi-billion dollar companies,” he said. “They take more than half of what my passengers pay. They need to take care of their workers ”.

Uber did not respond to a request for comment. In an email, a Lyft spokesperson wrote: “Lyft drivers are independent contractors. … Those who are self-employed can create CalSavers accounts to save towards retirement. “

Moreno had not heard of CalSavers. So far, the state has done little marketing to advertise the option. About 2,200 Californian self-employed workers have signed up, a very small fraction of the total.