Surfin’ USA? Retirement Readiness, CalSavers Style

Katie Selenski

CalSavers’ Executive Director

CalSavers is both new, and a program with the longest history among the state programs. This history is a testament to grit and dedication. To long hours and a plethora of idea-sharing discussions, and the willingness to work hard and make things happen. Advocated and launched during the tenure of Assemblyman and Senate President Kevin de Léon and Treasurer John Chiang, the program is growing strong under the leadership of Treasurer Fiona Ma. We talk today with Executive Director Katie Selenski, one of the hardest-working ED's in the country. Highlights below.

Welcome, Katie! So California is home to the largest workforce in the US, by our math about 18 million workers. Is that close?

Yes,18 million workers is about right. And our best estimate is that between seven and eight million of those folks are not covered by a retirement plan at work. It’s a big number.

We know retirement security matters – what is unique about what you’re facing in California?

I think the main bones of the retirement insecurity problem are very similar here to what you see across the country. Not enough people have access to an easy way to save at work. So that is certainly consistent across the states.

But there are a couple of ways that California is unique. Just yesterday I saw new analysis from the latest US Census data showing that California has the highest poverty rate in the country when you adjust for cost of living.  That's astounding when you consider we're the fifth largest economy in the world. We are the home of Silicon Valley, big agribusiness, other really successful industries generating so much wealth, and yet nearly half of our workers are on a trajectory to retire into economic hardship.

Realities like this are the reason California policymakers were the first in the country to start looking seriously at retirement security solutions way back in 2008.

The other aspect that makes California unique is, we are a big multicultural state and we're very proud of that. In terms of that uncovered population that we talked about -- those 7 to 8 million people -- our best estimate is that two thirds are people of color, and almost 49% are Latino.

Everything we do here is aimed to meet our savers where they are – in their language and in culturally relevant ways. And we're proud of the strides that we've taken there.

And, finally I would say we're just really big. For the most part, it's all similar issues and problems throughout the country, but you know, when you scale it up to the level where we are, I think it does add some complexity.

We remember seeing early survey work in California where lower income families said “they want to save, they could save and they would save” if it were made just a little bit easier.

Yes, absolutely. And interestingly we have reason to believe that a substantial portion of CalSavers participants are engaging with the financial services industry for the first time. It may be the first time that some of our folks even have a financial account. One of the beauties of this program is that you don't need to have a bank account to have an IRA with us. So you could think of this as an on-ramp to financial services in America.

We have observed in our field and stakeholder work over the last couple of years that – even without financial accounts - there is a strong and longstanding historic culture of savings in many immigrant communities. It may just be that participation in CalSavers is the first time that folks are engaging with financial institutions. So we're trying to make that easy, simple, not overwhelming, not scary, you know and provide some confidence for folks by ensuring that there is public oversight over the program.

Let’s talk about financial literacy. Someone recently said that the best financial literacy comes from financial education paired with financial experience. What do you think?

Oh yes, I think that makes a lot of sense. It's just like anything else in life, you know, learning to ride a bike, learning how to have a job for the first time. You can understand something conceptually, but then until you really tried it out, do you really get it?

So, we hope that we can serve as a good, if not lifelong, financial partner for folks -- a good starter program for people who have previously been disenfranchised or under-served. This gives them a place to get some experience working with investments, working with a long-term savings account, understanding how to interact with the customer service center of a large financial company. And we can help demonstrate it's actually not scary. It's easy.

And in fact, we can talk to savers in any language under the sun, literally. We’ve also worked hard with our business partner, Ascensus, to make the technological interfaces simple and as easy as possible. This includes our online portal and CalSavers’ bilingual mobile app. So, yes, I absolutely agree. If we can introduce people to this new world of savings and financial institutions in a friendly, easy, simple way, then I think that could make a world of difference in their broader financial lives.

You opened the program to pilot entrants in November 2018, with your first employer deadline in 2020. So we have to ask - how has the pandemic shifted your approach this year?

It's an interesting time to be launching a big, bold new statewide program with an employer requirement; overall the pandemic underscores the urgency of financial resiliency and how too many workers have been left out and need more tools.

You know, we think about it in two categories: the employer impact, and then the employee and saver impact.

I'll start with the saver impact. At first, we were a little anxious about what would happen with saver participation, and with withdrawals. This came as we saw businesses shutter and we heard reports of workers losing shifts or losing their jobs entirely. We know that many of the participants we serve are in the cross-hairs of that loss and devastation. We thought there might be high withdrawal rates and a big drop off in participation, but we have been very pleasantly surprised. Instead we see that the participation rates in terms new saver enrollments are pretty much steady. The rate of opting out is not much higher than it was before. So that's fantastic and I think it’s a testament to the effectiveness of automatic enrollment.

With existing savers, we did see a bit of an uptick in withdrawals early on -- around the April time-frame and the “peak” beginning part of the lockdown. And then withdrawal rates declined a bit and leveled out.

I’ll just be candid. The program was designed as a Roth IRA for a number of reasons, and one of those is that we are serving lower income people with cash flow limitations, many of whom are first time savers. The median income of our covered workforce is about $25,000 a year. We are never going to encourage anyone to take money out and access their long term retirement investments. But my goodness, if they are encountering such severe financial hardship as a result of the pandemic, that they need this savings to pay rent or to eat, then it's their money and it’s their right to access it. But we were pleasantly surprised to see that there was only a modest uptick in withdrawals, and then they declined back to pre-pandemic levels. So that's the saver side.

On the employer side, we're doing what we can to be sensitive to the plight of employers right now. We know that some of them are completely shuttered. Some of them hobbling along. Some of them are perfectly fine. In April the CalSavers Board decided to push back our first employer deadline from June 30 to September 30 of this year. And we got very positive response to that. And then going forward, we understand that there will be some employers that won't be ready either because they're shuttered or because of some other reason. And we're going to support employers where they are as we proceed over the next year.

And so! You are a few days away from your first official deadline. You've had good engagement and advance enrollment by employers -- how does it feel to be where you are now?

Despite all these challenges, it is an absolute thrill. There are so many people who have been working on this project for so long -- over the last decade and long before I got here. It’s really gratifying to be seeing the program come to life and grow.

And it's not just the numbers. We’re starting to hear the stories that are part of having access to CalSavers from both savers and employers. From the truck driver in Bakersfield who daydreams about retirement but never had an action plan before he joined CalSavers, to the janitor in Oakland who told me she never thought she’d be the “type” to have a retirement account until now, we’re hearing stories every single day about brand new savers. It gives me chills to see the program making a difference for the workers we exist to serve.

It’s exciting on the employer side, too. In the last week, we've seen a handful of job recruitment ads pop up out in the wild where employers are including “access to the CalSavers program” as a way of attracting applicants. Last week, we saw it in ads for daycare workers and fast foods cooks.

Not only are we making a difference in the lives of our workers, but that employers are recognizing retirement access as a powerful draw as well. And to see them bragging about joining CalSavers -- it's working the way it was supposed to work, which is just such a thrill.

That is so fantastic. We know you've been doing lots of hard work, Treasurer Fiona Ma has been doing lots of hard work, anything we haven't asked that you'd like to share?

Well I’ll share that we are employing every tactic and strategy we can come up with to reach these first 8,000 employers in Wave One. That includes sending lots of direct notices, digital advertising, field work, earned media, and engaging with our local chambers of commerce. Treasurer Ma is including CalSavers in her call to action when she's talking to small businesses and we’re engaging with legislative district offices to get the word out. We are working to use every arrow in our quiver to reach employers.

If any of your readers are part of communities in California who engage with employers, please call me. Our number one strategy is to partner with local community leaders who already have the trust and the ear of small business owners, to get the message out from trusted influencers. If that’s you – call me.

Katie Selenski, it’s our pleasure to talk to you and we are excited to see how things shape up for CalSavers! Thank you so much for sharing your insights, and energy with us. Do you want to connect with Katie on these or other topics? Catch up with her by email and on Twitter at @KatieSelenski. You can also learn more about the California State Treasurer’s office and the terrific work of the Treasury team here.

SPECIAL NOTE TO OUR FINANCIAL SERVICE PROVIDER COMMUNITY:

Katie, one of the interesting controversies around the state based retirement savings programs has been some providers worrying that the programs will take business away from them. What are you seeing?

Let me be really clear. Our mission is to expand access and coverage so that all California workers can get onto a path to retirement security, whether that’s through our own CalSavers option or through growth in the private market. We know that many employers, especially the very smallest that operate with the thinnest of margins, may never be able to overcome the barriers to entry in the private market—we’re here for them.

When I'm out in the field talking to advisors and others who work with employers, what I'm hearing is that there's a real mix in employer behavior in response to the mandate. There is definitely a group of employers that has wanted to sponsor a plan but, for various reasons, hasn’t done it yet. Either it hasn’t seemed like the right time, or they just didn't have that last little nudge to cause them to act. Now they do. For some of them at least they're going with a private plan.

We often have industry professionals share their stories about new plan formation prompted by the mandate. We know, in a real sense, if an employer is choosing a 401(k) instead of CalSavers, that's a more robust retirement offering than a Roth IRA can be, particularly for workers who can afford higher annual contributions. So we would be delighted to see a substantial proportion of employers choosing to do new plan formation in the private market as a result of the mandate.

We're working with research partners to figure out ways to quantitatively measure new plan formation over the next few years so that we can report on it. We also welcome the innovation that we're starting to see on the private space. We're starting to see more simple, low cost, off the shelf 401(k)’s for small business, and we're excited by that.

Our board members know that the way that we're going to measure our success is by the extent of new coverage and retirement access in the state, whether that's via CalSavers or private plans. The Board really understands that if we see an uptick in private market plans, that's part of our success and part of the story of us achieving our mission.

This piece was featured in the September 24, 2020 edition of Retirement Security Matters. For more fresh thinking on retirement savings innovation, check out the newsletter here.