June 10, 2019
New Mandate for All Employers in CA
By Paul Miloe, CRPS®
If you own a business in CA and currently do not offer an employer-sponsored retirement plan (such as a SEP, SIMPLE, 401(k), etc.), take note that as of July 1, 2019, CA has implemented the mandatory CalSavers program. While CA hasn’t always been a friend to business owners, the good news is that the new program does not have a direct cost to the employer but will require time and effort to enroll employees and administer the plan.
So, what is CalSavers? It is a Retirement Savings Program enacted by Office of the State Treasurer of CA designed to provide employers with a means to offer employees a way to save for retirement. The state claims there are no fees, no fiduciary requirements, and that the plan has minimal maintenance. CalSavers applies to all employers in CA that have 5 or more employees.
The system comes with a 3-year phase-in:
– 100+ employees – enroll by 6/30/2020;
– 50+ employees – enroll by 6/30/2021;
– 5 or more employees – enroll by 6/30/2022.
Any employer wishing to join the pilot program can enroll on 7/1/2019. The CalSavers website says that CA businesses will be notified by the state when it’s time to enroll. Depending on your business size, note the dates above and watch for your notification.
Enrollment in CalSavers for the employer requires 4 steps:
1. Adding delegate (person within your company to oversee the plan);
2. setting up payroll (using 1 of 4 file formats accepted by the state);
3. adding employees; and
4. submitting contributions.
For your employees, the state will requires that ALL of your employees (age 18 or older) are added to the system. The state will then contact each 30-days prior to their enrollment to customize their accounts (add beneficiaries/make investment elections/confirm contribution) and allow them to opt out of the program. If no action is taken by the employee, they will be automatically enrolled at a 5% contribution rate. Employee contributions will have an automatic increase feature that will up their contribution by 1%/yr until they are deferring 8%.
Employee contributions can be invested in a range of investment choices selected by the participant. If automatically enrolled, the default is for the first $1,000 to go to a cash holding and additional contributions would then go to a fund that targets a retirement date. In addition to the underlying fund fee, there is a 0.05% State Fee and 0.75% Program Fee.
The CalSavers program will initially be a Roth IRA, and the ability to make contributions hinges on the income restrictions normally assessed for Roth IRA eligibility. By mid-2019, CA intends to update their program to allow Traditional IRA contributions so that those with higher incomes can participate, but Roth will remain the default (recall that after-tax funding creates immediate tax revenue; states and the Feds love Roth contributions).
For full program details and to review the Program Disclosure Booklet, please visit www.calsavers.com.
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.