Mandatory CA retirement plan: CalSavers-Know your options!
If you live in California, you should become familiar with the state’s newly implemented state retirement plan known as CAL-SAVERS. How did this program come about and why is it growing in popularity? Are employers mandated to participate and do they have other options for retirement plans? Let’s discuss these questions below.
Why was CalSavers introduced?
The fact that a majority of Americans are not saving nearly enough for retirement has long been a growing concern and in reality many are not saving at all. The good news is that recent studies have shown that employees are much more likely to contribute to a 401k plan if their employer offers it as a benefit. On top of this, a majority of employees cite an employer’s offering of a 401k plan as a primary reason for accepting an offer to work for that very same employer. Despite this, US Bureau of Labor states that only 4 in 10 employers with 100 or less employees actually provide this as a benefit.
What does CalSavers plan entail?
Cal-Savers requires that employers with at least 5 employees offer a retirement savings plan. If they do not offer their own plan, they must join the state’s program, where employees contribute to a Roth IRA. Yes, Roth IRA employee contributions are made with after-tax monies.
- Employee contributes to a Roth IRA – after-tax monies
- Employee contributions are automatic (employee can opt out)
- Investment options are chosen by the state
Employers must set up their own plan or register for CalSavers by these deadlines:
Size of Business | Deadline |
---|---|
Over 100 employees | September 30, 2021 (passed) |
Over 50 employees | June 30, 2021 (passed) |
5 or more employees | June 30, 2022 |
CalSavers sets the default savings rate for employees at 5 percent, with an automatic contribution increase of 1 percent each year, up to 8 percent. Employees can opt out of program or change their savings rate at any time. With a CalSavers plan, all employees who have reached age 18 and have been on W-2 payroll for 30 days must be automatically enrolled.
In addition, employer contributions for employees are not allowed and Owners and those making over a certain income level (an AGI threshold) will not be able to participate in the CalSavers plan.
Employers are expected to receive annual penalties of up to $750 per eligible employee for not timely complying with CalSavers.
Potentially better retirement plan options?
Employers can look into sponsoring their own retirement plan versus automatically adopting the state’s CalSavers plan for several good reasons. Starting their own plan can provide more flexibility and be designed with an employer’s specific goals in mind. Also, employers who start a new plan may be eligible for a new federal tax credit up to $5,000, every year for the first three years. In addition, below are even more benefits:
- Tax deductible contributions and/or Roth contributions
- Higher contribution limits
- More company-targeted eligibility requirement options (CalSavers is only set at all employees age 18 after 30 days of employment)
- Allowing for employer contributions
- Owners and highly compensated employees can contribute
- And even more benefits & flexibility!
Take a look now!
Employers should look at their options and take advantage of the benefits above and start their own plan now. It is important that you have the expert perspective and resources for building and managing your new retirement plan. At MY-Employee Benefits Plus, we specialize in helping find the perfect retirement plan solution to fit your company, ultimately freeing you and your key employees up to focus on continued business retention, growth and success. Start a conversation with us here now.