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Retirement Doctor: New Mandatory Employee Retirement Savings Program "CalSavers"

Feb 22, 2019 1:48:37 PM / by Mike Rogers

 

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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?

 

2019

State IRA

SIMPLE IRA

401(k)

Contribution Max

$6,000

$13,000

$19,000

Company Match Option

No

Yes, mandatory

Yes, at employer’s discretion

Tax Credits for Opening New Plan

No

Up to $500 per year, for the first 3 years

Up to $500 per year for the first 3 years

Employer Tasks

The employer processes payroll contributions, updates contribution rates, adds newly eligible employees, etc.

The employer processes payroll contributions, updates contribution rates, adds newly eligible employees, etc.

The employer processes payroll contributions, updates contribution rates, adds newly eligible employees, etc.

  

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.

 

Topics: 401(k) plan, 401(k) plan sponsor, 401(k), best practices, ERISA, Audit, Retirement Doctor

Mike Rogers

Written by Mike Rogers

Mike is an industry veteran with 30 years of experience in every aspect of retirement planning, including registered investment advisory, third party administration, and record keeping. His list of credentials is as extensive as it is impressive: Qualified Pension Administrator (QPA), Qualified 401K Administrator (QKA), Certified Pension Consultant (CPC), Qualified Pension Financial Consultant (QPFC), Accredited Investment Fiduciary (AIF®), Tax Exempt and Governmental Plan Consultant (TGPC), Certified Behavioral Finance Analyst (CBFA), Professional Plan Consultant (PPC), Global Fiduciary Strategist (GFS). Mike is also a former member of the Schwab SRT Technologies Advisory Board, Schwab TPA Advisory Board, and Fidelity/IBG Advisory Board.

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