CalSavers Retirement Savings Program: Chapter 804 (CA statutes 2016)
CalSavers Retirement Savings Program is the “one-size” fits all solution to California residents apparent struggle to save for a healthy retirement. The program is a portable Roth IRA (Individual Retirement Account) that provides automatic enrollment (with opt-out option) and payroll withholdings to help workers who currently do not have access to an employer retirement plan.
What CalSavers will mean for employers:
CalSavers will be mandatory and all employers with five or more employees that do not offer an employer sponsored retirement plan, such as a 401(k), will be required to offer either an employer-sponsored plan or provide their employees with direct access to CalSavers Retirement Program. Employers will be required to allow enrolled employees to make payroll withholdings directly into the Secure Choice accounts through a third-party administrator. Employers will not be allowed to make contributions. However, employers will not incur fees to facilitate the program or have fiduciary responsibility and will be exempt from ERISA (Employee Retirement Income Security Act).
What CalSavers will mean for employees:
When CalSavers is open for business statewide on July 1, 2019, employees who work for a participating employer will be automatically enrolled into a CalSavers Roth IRA account, at a 5% automatic payroll deduction with a 1% payroll deduction increase each year, up to 8%. An employee can choose not to participate at any time by submitting an opt out form. The account will stay with the employee from job to job throughout their career.
Timeline to Launch:
. Late 2018 Pilot program
. 2019: Program launch and being 3 year phased roll out of the employer mandate by size, beginning with the largest employers
Employers Registration Deadline:
. employees > 100 June 30, 2020
. employees > 50 June 30, 2021
. employees > 5 June 30, 2022
What are the differences among state-run IRAs, SIMPLE IRAs and 401(k) plans?
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2019
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State IRA
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SIMPLE IRA
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401(k)
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Contribution Max
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$6,000
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$13,000
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$19,000
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Company Match Option
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No
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Yes, mandatory
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Yes, at employer’s discretion
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Tax Credits for Opening New Plan
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No
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Up to $500 per year, for the first 3 years
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Up to $500 per year for the first 3 years
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Employer Tasks
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The employer processes payroll contributions, updates contribution rates, adds newly eligible employees, etc.
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The employer processes payroll contributions, updates contribution rates, adds newly eligible employees, etc.
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The employer processes payroll contributions, updates contribution rates, adds newly eligible employees, etc.
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What to consider…
Benefits to employers:
Easy registration process for business owners
Limited ongoing administration (responsible for payroll deduction)
No investment due diligence or associated fiduciary responsibility
No cost to the business owner
No required employer matching or profit-sharing contributions
Offers employees access to payroll deduction Roth IRA’s
Automated savings for employees (employees must opt out)
Limitations for employers:
Subject to IRS Roth IRA contribution limits
Subject to IRS compensation limits associated with Roth IRA accounts
High income earners phased out from participating
No ability to add matching or profit-sharing contributions
Limited investment options for employees
No option for employees to contribution to a Traditional (pre-tax) IRA (Roth IRA only)
Default savings rate is set at 5% (employees will need to opt out or select alternate amount)
Automatic increase by 1% each year until a participant’s savings rate reaches 8% (unless a participant chooses otherwise)
No employee education provided
Low contribution amounts compared to other employer sponsored retirement plans
What should you do?
Identify when you will need to have a plan in place, based on your companies’ size, and when you will need to begin making payroll deductions
Assess the pros and cons of implementing the CalSavers Plan vs. establishing your own retirement plan
Contact our advisors at Filice Retirement Services to discuss the options you have and determine what would work best for both your company and you employee demographic.
