Some of you may have received a warning from your benefits or payroll provider about the July 1 deadline associated with the rollout of SB-1234, The California Secure Choice Retirement Savings Trust Act. Here is the first fact: the July 1 date is not a deadline that requires you to act immediately. Instead the date means that employers are able to begin participation on July 1. The Senate Bill, signed by Governor Jerry Brown last fall, creates a state-managed retirement savings program, called CalSavers, for private-sector workers who lack a retirement savings option. Included in the legislation are mandatory requirements for employers with 5 or more employees that will be implemented during a phased timeline. The rollout of this legislation has caused a considerable amount of confusion among employers as vendors try to get your business. This brief article can shed some light on potential considerations for your business.
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The purpose of the Secure Choice Retirement Savings Trust Act, through the CalSavers Program, is to ensure that as many employees as possible have easy access to a retirement savings account. Qualified employees may participate in one of two ways: through their employer if available or as individuals.
Covered Employers
If your business has more than 5 employees, and does not offer a qualified retirement savings plan, then you will need to take action to comply with the new legislation. You will have a choice to provide your own qualified plan, or offer CalSavers for your employees. There are pros and cons to both, with the main differences being that CalSavers is a State Program based on Post Tax contributions; it does not allow employer contributions; and it does not have the flexibility of a private plan. Employer-sponsored plans may have higher contribution limits and allow employers to make matching contributions.
If your business does offer a retirement plan, you will simply need to make sure that it is a qualified plan, and indicate your exemption on the CalSavers website after July 1, 2019 and before your deadline passes. Qualified plans include: Qualified pension plans; 401(k) plans; 403(a) plans; 403(b) plans; Simplified Employee Pension (SEP) plans; Savings Incentive Match Plan for Employees (SIMPLE) plans; and Payroll deduction IRAs with automatic enrollment.
Covered Employees
Anyone who is at least 18 years old and has the status of an employee (receives W-2 income), independent contractor or self-employed is eligible. Employees whose employer has fewer than 5 employees, and employees who are not eligible to join an employer-sponsored plan are eligible to join CalSavers on their own.
Deadlines for Registration
The compliance deadlines begin earliest for the largest employers, but any employer can start the registration process starting on July 1, 2019.
July 1, 2019 – registration open to all employers
June 30, 2020 – deadline for employers with 100+ employees
June 30, 2021 – deadline for employers with 50+ employees
June 30, 2022 – deadline for employers with 5+ employees
Next Steps
First of all, don’t be worried or misled by payroll companies or other vendors who send “notices” suggesting that you should comply by offering one of their retirement savings plan options. Employers have wide latitude to choose whatever qualified plan (including Cal Savers) might work best for their business.
If your company does not offer a qualified plan, you do have time before deadlines, however you will want to begin evaluating options soon. Comparing and implementing qualified retirement plans normally takes at least 3 months. With deadlines looming, the process is likely to take even longer.
If your company currently offers a plan, you might think about comparing it to the CalSavers option. It could be a better option for your company. Bottom line, you have options until you are required to register your company’s exemption.
Finally, avoid penalties (starting at $250 per employee) by adhering to the compliance deadlines set forth in the legislation. Perform your research and comparisons, and determine which type of plan will work best for your company. The CalSavers website is concise and informative, and includes a helpful selection of Frequently Asked Questions about the program. Set aside a few minutes to visit the website and familiarize yourself with the requirements of the program details and requirements.
The HR Manager consultants are available to assist you with evaluating and selecting the best retirement options for your organization, please feel free to reach out.