California Businesses: What You Need to Know About New Requirements for a Retirement Plan or Enrollment in CalSavers
The retirement crisis is real, as only about one in five Americans have saved anything for retirement.
While any of your employees can set up a retirement plan on their own, it’s easier and more cost effective for employees if you, as an employer, offer a qualified retirement plan to them. The fact that most employers (60%) did not offer retirement plan options left 7 million Californians without clear options for saving.
To bridge the gap and hopefully avoid the looming economic hardship, California passed the California Secure Choice Retirement Savings Program (Senate Bill 1234), called “the most ambitious push to expand retirement security since the passage of Social Security in the 1930s.” To be clear, California isn’t the only state to consider state-mandated retirement legislation. More than 30 states have considered such legislation and 13 states have signed provisions into law, but California has the largest population, which means the requirement would affect more workers.
What are the New Requirements?
The goal of the new requirements is to encourage California employees to save money for retirement. CalSavers is really just California’s default retirement savings plan for private-sector employees. It’s designed to make it easy for you to offer a retirement program to your employees if you don’t already. It’s not a new concept in California. It was first piloted in November 2018, after the legislation passed in 2016,and similar state-mandated plans are already in place around the US.
What’s different now is that the latest deadline passed on June 30th for small businesses with five or more employees who are required to comply with the provisions. The CalSavers program aims to help millions of Californians stay on track for their futures by saving for retirement. The goal of the program is for your employees to defer their wages via employer-managed payroll deductions to a state-managed IRA program. With minimal responsibilities for you as an employer and no fees, it’s one way to encourage your employees to save money without fiduciary liability.
Of course, it’s not the only way. You do have the option of offering your employees a qualified retirement plan other than the CalSavers plan. At HR for Health, we offer a retirement option that would fulfill the requirement. Reach out to our team to learn more about what your options are and how we can help.
What are the Retirement Plan Options?
As an employer in California without a retirement plan, you have two options:
• Register your practice and enroll your employees in CalSavers OR
• Provide a retirement plan through the private market.
If you find yourself without a retirement program and have at least five employees currently based in California, with at least one who is 18+ years old, you must register for CalSavers for your practice. HR for Health can We look forward to consulting with you and answering your questions about retirement plan options.
What are the Deadlines for Signing up with CalSavers?
Your deadline for signing up with CalSavers varies depending on how many employees you have. Here’s a quick breakdown:
• September 30, 2020 (extended from June 30, 2020) for companies with more than 100 employees.
• June 30, 2021 for companies with 50-99 employees.
• June 30, 2022 for companies with 5-49 employees.
If you currently have 5 or more employees and do not offer a qualified retirement plan, register now to remain compliant or reach out to HR for Health to discuss other retirement plan options. Update your employee handbook to ensure continued compliance.
Qualified Retirement Plans
It’s possible that you offer a retirement plan, but it’s not “qualified..” In other words, it does not meet the requirements to be eligible as an alternative, which would exempt you from the CalSavers requirement. Check and verify to ensure that you are offering a plan that complies with the legal requirements. Here’s a list of qualified retirement plans.
• 401(a) Qualified Plan (including profit-sharing plans and defined benefit plans).
• 401(k) plans (including multiple employer plans or pooled employer plans).
• 403(a) Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan.
• 408(p) Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan.
• 408(k) Simplified Employee Pension (SEP) plans.
• Payroll deduction IRAs with automatic enrollment.
If you’re already offering one of these qualified retirement plans, you may not be required to register for the CalSavers program. That qualified plan could also be a private retirement plan provided the program satisfies the requirements and helps employees save money for retirement. If you are exempt, you do not need to inform the CalSavers Administrator of that exemption. Schedule a consultation to learn how HR for Health can help you navigate these compliance issues.
Structure of CalSavers Program
The CalSavers program was put into place by legislation to address retirement savings and financial insecurity. It’s designed to make it easy for your employees to make paycheck deductions, even if you have not offered retirement savings plans in the past.
Employee Obligations – What They Can Do?
Under CalSavers, the default paycheck deduction for employee accounts is 5%. Here are just a few of the obligations or possible actions your employees can take related to the CalSavers Program:
• Your employees can change the contribution rate to a higher or lower investment rate as preferred.
• Your employees can opt-out of the CalSavers Program. They must do so in writing with the right forms.
• Your employees can opt back into the program if desired. They can opt-in by enrolling via CalSavers.
• If the default rate persists, your employees’ contribution rate will automatically increase by 1% each year until it reaches 8%.
Even if your employee changes jobs, they will still have access to their CalSavers plan with the same compensation structure in place.
Your CalSavers Obligations (As An Employer)
You’re required to register and upload your employee roster, but you can also participate in the following ways:
• Your employee can also enroll in CalSavers themselves.
• You must submit the employee contributions to CalSavers.
• You will handle the transfer of deductible/investment payments to CalSavers
As part of the registration process, the CalSavers Administrator will deliver information packets to all eligible employees at your practice. The CalSavers packets will describe the program, with details about the 30-day opt-out period.
What About the Legal Challenges?
In HJTA v. Cal. Secure Choice (9th Cir. 20-15591),the Howard Jarvis Taxpayers Association (HJTA) said that CalSavers “violates the Supremacy Clause of the United States Constitution because it is expressly pre-empted” by the Employee Retirement Income Security Act (ERISA).The court dismissed the case and the ruling was later upheld because you, as the employer, are not required to maintain or manage CalSavers.
Schedule a consultation to learn how HR for Health can help you track and understand the evolving legal implications of the CalSavers controversies.
How HR for Health Can Help
HR for Health offers a retirement option that would fulfill the requirement. We can also help you secure any documents related to your retirement plan. We are standing by, ready to help you prepare for the changes and navigate your way through the policy and procedures process to ensure you’re compliant. If you still have questions or concerns, take a look at the Common HR Mistakes and How to Avoid Them. Then, schedule a consultation today to see how HR for Health can help your practice.