A number of states have approved initiatives for state-run plans for private sector employees.
Once approved, what is the process to get these plans to implementation, and how long does it take?
John Scott, director of retirement savings at Pew Charitable Trusts, who is based in Washington, D.C., tells PLANSPONSOR the devil is in the details. Sometimes the legislation has the details of the plan laid out, but some states will have to create a board to establish details of the plan. It depends on what the legislation says in a particular state.
Scott says the first step for plans just getting started will be to set
up an administrative body. This may include some political appointees
from the agencies directly involved and/or representatives from industry
and employee groups. He speculates that within the state government,
the administrative body will probably include someone from the State
Treasury department and possibly a representative from the state’s
public-sector pension. The state will have to set up a structure of
governance and administration, Scott says. That may be in the bill, or
the administrative body may have to establish documents.
The California Secure Choice Retirement Savings Act was signed into law last September. The California Secure Choice Retirement Savings Investment Board has already been established. The nine-member board is chaired by the State Treasurer and includes the State Controller, the Director of Finance, a small business representative, an individual with retirement savings and investment expertise, an employee representatives, a public member, and two additional members.
Ruth Holton-Hodson, senior policy adviser for health and retirement initiatives, based in Sacramento, tells PLANSPONSOR the first step they will take is to hire an executive director. They have received responses and will start interviewing people shortly; the hire may be someone from the private-sector or within the government.
Next, after approval by the board, they will issue a request for proposals (RFP) for consultants to help the state develop regulations and issue RFPs for a recordkeeper and investment managers. She says they may hire a recordkeeper to provide all services or do open architecture with a recordkeeper and also have third-party investment managers.
Scott says it is possible some states will assign someone in Treasury or from the public pension to make investment decisions, but he sees most plans outsourcing. “These are programs for private-sector workers, so having outside investment managers and recordkeeers gives credibility that this is completely apart from the state,” he says.
Holton-Hodson explains that California’s legislation just provides a framework for the plan in broad brush strokes. “Now we have to translate the legislation into regulations—going from the table of contents to precise content,” she says. According to Holton-Hodson, California officials will start this summer and it will take up to six months or more before the system is ready for implementation. “It will be a public, transparent process. Every stakeholder will have time to make comments.”
Holton-Hodson says California Secure Choice will be forming a business and advisory committee of employees and representatives to figure out the most effective way to design the program so it meets everyone’s needs. As part of the process, it will develop an investment policy. The Secure Choice statute does require that the program invest in either U.S. Treasuries or something similarly safe up to the first three years, she notes. NEXT: Communication and implementation