MARIA, A JANITOR WORKING IN THE BAY AREA OF CALIFORNIA, had been working in the industry for 20 years without access to a retirement savings plan. A couple of years ago, she was enrolled in a program offered by the state of California through her employer, Janico Building Services. “Maria came to her manager and was ecstatic,” says Lorenzo Harris, president of the company, which is based near Sacramento.

The program, CalSavers, was designed to reach employees like Maria—people without access to 401(k) or similar plans through their employers. By some estimates, 57 million workers in the U.S. have no access to plans.

When she was enrolled, Maria had been working for Janico Building Services for some time but didn’t have a retirement savings plan because Janico, like many small companies in California, thought it couldn’t afford to offer one.

That changed when Janico went on to become the first company to enroll in  , the California program that offers automatic, portable individual retirement accounts via employers.

Initially, Harris says, he viewed the program as a “typical” government mandate—in other words, a burden. “California is notorious for creating legislation that favors employees over employers,” Harris says. But he later came to see it as a good thing—not only for his company’s employees, but also for his company. Looking back, Harris says the program has helped him with recruiting and was easy to implement.

In early July, about a week after a key enrollment deadline had passed, CalSavers met a remarkable milestone: It moved from enrolling one company—Janico, in November 2018—to passing the mark of 100,000 enrolled employers.

Enrollments Surge

That number represents a steep rise from the 38,000 enrolled employers at the beginning of the second quarter of this year, says the executive director of CalSavers, Katie Selenski. At the time of writing, CalSavers had more than 283,000 funded accounts and $232 million of total assets. The average monthly contribution per saver was $164.

“We are a little tired from the rush but thrilled with the response,” says Selenski. “Employers have just been pouring in. Our teammates working on the phone are working overtime to meet the need.”

At the end of the deadline day for the most recent wave of registrations, CalSavers had a 77% response rate, up from a 61% response rate at the end of the last wave, Selenski says.

“Employers are saying that enrolling was not as difficult as they expected. In general, I think employers are glad to have a way to facilitate their employees’ access to retirement savings at no cost to themselves,” she says.

California mandates that companies with at least five California employees register for the program if they do not offer a 401(k) or another retirement plan type that exempts them. California

Exemptions Illustrate How Private Plans Are Flourishing

As of the recent deadline in California, by which time more than 100,000 employers had enrolled, another 98,000 employers had reported an exemption because they had either launched a private plan or reported their existing plan for the first time. “This number tells you that there are a lot of employers who are choosing one of the new private options,” says Selenski.

Finhabits, a fintech platform that describes itself as by Latinos for Latinos, says it launched its Finhabits 401(k) plans in response to the CalSavers mandate. The company’s founder and CEO, Carlos Garcia, says, “Interest in the Finhabits 401(k) plans has been steadily increasing due to the mandate.”

Finhabits worked together with global retirement technology provider Smart to develop the plans. Jodan Ledford, Smart’s CEO, says, “While CalSavers is great for some businesses, it’s not the best fit for everyone.” 401(k) plans allow for much higher employee contributions, enable employers to make matching contributions and offer a range of tax benefits for the business owners, unlike the CalSavers plan. “The combination of the mandate and our streamlined, low-cost technology means we’re able to deliver the benefits of 401(k)s to even the smallest of businesses,” Ledford says.

Others have also noted how the private sector is responding.

 Selenski applauds what’s been going on in the private sector as a result of California’s mandate. “We think that the expansion in private coverage is great, and we’re encouraged to see the innovation on the private-product side.”

Scott Parry is a senior vice president at Ascensus, the company that administered Oregon’s plan, the to be offered by a state. Ascensus now administers the plan in Illinois, as well as CalSavers’ plan. Parry says, “For one program, the CalSavers has had a phenomenal impact on retirement savings.”

Ascensus, which had built technology to manage 529 college-savings plans, took that technology and rebuilt it to work with the rules of state auto-IRA programs. “We built a system that allows states to be in compliance with the legislative mandates while being low-cost and scalable,” Parry says.  

Parry says he hopes to see more states joining forces to bring plans to their citizens, even though multi-state programs bring with them their own challenges, because laws will be different in each state and may impact fiduciary requirements. As such, Ascensus is researching the best way to bring multi-state programs to market.

Participation

Of the employees enrolled in CalSavers under the state’s mandate, the opt-out rate during the first 30-day period is about 25%, Selenski says. Then it goes up about 10% after enrollment, when people’s circumstances change or they change their minds about participating, to a total of 3% opting out.

“We are very impressed by these rates when you consider the cash-flow needs of participants who have an average income of less than $30,000 a year and the fact that they’re not getting a match or incentive,” says Selenski.

Looking Forward

In the United Kingdom, some 79% of workers are now saving for retirement, in part due to a similar program there called the Automatic Enrolment Programme, which created a pension plan called Nest, which stands for the National Employment Savings Trust. Some elements of the CalSavers program were modeled on the AEP, which started in 2012 and was mandated for all employees by 2017.

Nest uses Tata Consultancy Services as a recordkeeper and has State Street Corporation for investment servicing. It also has 17 outsourced fund managers managing a range of asset classes. Like CalSavers, the program is aimed at low- and moderate-income workers. Unlike CalSavers, though, the U.K.’s program includes employer contributions and tax breaks for savers.

As of May 2022, Nest had £ 24.2 billion in assets under management and 11.3 million funded accounts, according to Will Sandbrook, managing director of Nest Insight, a public-benefit research and innovation center that serves Nest Corporation, which runs the Nest pension scheme.

It will be some time before the CalSavers numbers are comparable to those of Nest, but Nest shows what is possible.

For now, Selenski is focused on managing new enrollments. She says that if patterns from previous waves hold, employee registrations will continue to rise and the last quarter of the year will see a surge in funded accounts.