Education

New state retirement law could help childcare workers save

Tonia McMillian, a home-based child care provider, high-fives 6-year-old Skylar on Feb. 12 in her Bellflower home. In addition to her home care, McMillian also visits other childcare through the day as a consultant.
Tonia McMillian, a home-based child care provider, high-fives 6-year-old Skylar on Feb. 12 in her Bellflower home. In addition to her home care, McMillian also visits other childcare through the day as a consultant.
Maya Sugarman/KPCC

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California's child care workers are among the estimated 7 million workers in the state who can benefit from a new law that will allow them to save money in a state-run retirement plan.  

Under the law, signed by Gov. Jerry Brown in September, workers who don’t currently have a retirement savings plan through their employer will be automatically enrolled in the new state program starting early in 2018. 

Every California employer with more than five workers must enroll employees in the plan. Three percent of their income will be deducted from each paycheck. Workers can opt out of the plan if they don’t want it. Employers are not required to contribute to the funds. Like traditional retirement plans, the money will be invested. Employees will be able to see how the money grows over time, and can draw from it at a later date.

There are an estimated 150,000 childcare workers in the state. Most do not get any employer benefits, including retirement accounts. Tonia McMillian, a Bellflower home childcare provider says until this new law was signed, she was seriously considering other job options.

“I’m [thinking I'm] going to have to go get another job in order to get retirement,” she said.

McMillian is self-employed, as are thousands of childcare workers statewide. She has previously tried to save for retirement through companies that offer products like life insurance, she said, explaining that she faced high savings requirements and couldn’t always make the contributions.

She said she is thrilled about the new state program, and the 3 percent minimum.

“Not only will I not have to contribute $300 or $400 a month, whatever I put in it won’t break my back to do it,” she said. “I also know that it will also be secure because the state will be providing fiscal oversight.”

However, news of the new law hasn’t yet reached all childcare workers or center directors. When KPCC contacted a half a dozen childcare centers around the Los Angeles area, none knew about the law.

A small childcare center in Inglewood, Bright Beginnings employs seven staff members. Director Dina Reed was not familiar with the new law. When asked if she has a retirement account, Reed said “I’d love to have one, everyone would.” But she added that she wasn't sure if she would use the state program or opt out.

At another childcare center, the Mexican American Opportunity Fund, which employs 950 people, Vice President of Operations Vicky Sanots said her company already offers retirement accounts to their employees, and matches contributions up to 2 percent.

Wages are typically low in the childcare field. Many workers are on the minimum wage edge. Some workers are part of a local SEIU chapter that backed the new retirement fund law. These same workers will now work to get word out to other childcare providers.

Yet some people worry that childcare workers may not be able to afford taking a 3 percent income deduction in their paycheck, and many will opt out. Nari Rhee, at the Center for Labor, Research and Education at UC Berkeley, said she believes childcare workers should stay in the program because they will see their money grow long term.

“When you have auto enrollment, the workers who benefit the most are low wage workers,” she said.

Rhee explained that the retirement accounts will use a compound interest formula, so even small contributions will grow over time. She also said the auto-deduct function means workers wont have to go through the hassle of signing up, and may not even feel the pinch of a few dollars less in their take home pay.

Nationwide, only about half of households age 55 and older have retirement savings, according to the Government Accountability Office.