Understanding CalSavers and Your Alternatives
Retirement poses a considerable challenge to most workers today. That’s why the state of California started the CalSavers program, to help businesses in the state offer a retirement plan to their employees. In fact, the law requires California businesses with five or more employees to offer either the CalSavers program or another retirement plan to their workers, by June 30, 2021 (for businesses with more than 50 employees) or June 30, 2022 (for those with more than five employees). Here’s what you need to know, if you’re comparing your options.
CalSavers is an IRA program that is funded by payroll deductions. Since it was established by the state government, and administered by a private sector financial services firm, many consider CalSavers to be a simple and straightforward option. However, there are a few drawbacks to CalSavers, such as:
- It is a Roth IRA and subject to income limits. This means higher-income employees won’t be able to participate
- It is not subject to worker protections under ERISA
- Contributions are made on an after-tax basis, so employees won’t receive tax advantages in the year that they make contributions
- Contribution limits are low; $6,000 annually or $7,000 for those age 50 and older
- There are no employer matching or profit sharing contribution options
- The plan carries a relatively limited range of investment options
- Employee fees can run higher than some other retirement plans, impacting overall employee savings over time
While nearly all California businesses are now required to provide a retirement plan for employees, CalSavers is simply one option and it may not be the best fit for your group. So, we are encouraging our clients to review their plan objectives and the pros/cons of CalSavers vs 401(k)’s, etc.
BAHIMI now has a retirement plan team of specialists ready to assist. We are here to run this review on your behalf and help you make the best decision for your team.
Give us a call to discuss your retirement plan options, and we can help you locate a plan that best suits you and your employees.