Retirement Planning Just Got Easier
CA State Sponsored Plan for Small Businesses
The deadline for businesses in CA to register for the CalSavers Retirement Program is fast approaching. All employers with 5+ employees in CA must register with the state by June 30, 2022, and begin offering a retirement plan if they don’t already have a plan in place.
It’s estimated that over 7.5 million workers in CA lack access to an employer-sponsored retirement plan which can cause a severe financial hardship at retirement time or significantly extend the age to which someone has to work before retiring.
In response to the retirement crisis several states including CA have begun establishing their own retirement plans. Many smaller employers are wary of starting their own company retirement plans fearing the administrative burden, the fees and fiduciary responsibility that comes with being a plan sponsor.
CA has begun a new program called CalSavers to help employees save for retirement without the hassle for their employers. By 2022 employers in California with five or more employees are required to offer a retirement plan — either through the private market, or by giving their employees access to the new, state-run CalSavers program. You may need a competent team to help you with your strategies in keeping your employees happy through benefits and rewards.
What is CalSavers?
CalSavers offers a Roth Individual Retirement Account (IRA) as well as a traditional IRA. The difference between the two: Roth IRAs invest post-taxed earnings and withdrawals aren't taxed, while traditional IRAs invest pre-tax earnings and withdrawals will be taxed as income.
When does this become effective for employers?
Eligible employers must first register their business, and then once registered they have one year before the mandated deadline for their size business to implement CalSavers, if the business does not already have a qualified plan in place.
The implementation deadlines are as follows:
June 30, 2020: Businesses with 100-plus employees
June 30, 2021: Businesses with 50-plus employees
June 30, 2022: Businesses with five-plus employees.
Even though there is no fee to register for the program, employers could face financial penalties for not having a retirement savings plan available for eligible
employees to join. The proposed fines range from $250 per eligible employee if an employer remains noncompliant after 90 days of being served notice, escalating to $500 per eligible employee if noncompliance reaches 180 days or more after the notice.
Employers must also engage in some account management activities including transmitting employee contributions to the plan and notifying and adding new employees that join the company.
Is this good for employers?
Many small employers would love to offer a retirement plan but are concerned about the costs. CalSavers provides employers with a retirement savings program without the administrative complexity, fees, or fiduciary liability of existing options for employers. Employers are not required to match employee contributions. A CalSavers account is a personal IRA account overseen by the CalSavers Retirement Savings Investment Board.
What are the benefits for employees?
Employees can participate in a portable plan that follows them from job to job and enables them to opt out and back in at any point. If employees do not act within 30 days of notification once an employer registers for the program, they will be automatically enrolled at the default savings rate of 5% of pay. Employees can adjust their contribution rate at any time.
The CalSavers website provides employers and employees with enrollment and administration resources and FAQ’s to help guide them along the way. This type of plan can provide a huge safety net for employees who might otherwise not have access to a retirement plan.
FutureSense can help your organization with any HR orcompensation needs for your organization in California. Contact info@futuresense.com with any questions.
About FutureSense
FutureSense is a management consulting firm that provides integrated solutions to build and sustain human capital capacity. The firm can work with you by offering support and guidance to manage your workforce. To learn more about FutureSense, please visit FutureSense.com.