Historically, employees of small businesses have enjoyed few options with regard to retirement planning. With only four out of ten small businesses offering any sort of retirement benefit, many Californians faced challenges with regard to their financial futures. Looking toward the future, and envisioning millions of citizens retiring at barely above the poverty line, lawmakers stepped in to create a state-operated retirement system.
CalSavers is now open for enrollment, with small businesses employing five or more workers required to enroll. Enrollment deadlines are staggered over the next two years, with the end goal of enrolling seven million Californians into a retirement savings plan (unless they take steps to opt out).
The set-up is relatively simple: CalSavers will provide an IRA (Individual Retirement Account) and eligible employees of participating businesses will be automatically enrolled at a 5 percent contribution rate. A one percent automatic escalation will apply, up to an 8 percent contribution rate. Accounts stay with employees even if they change jobs.
Business owners, also, can enroll in CalSavers if they are also employees of their businesses. Those who are not employees of their businesses can participate, but must make contributions from their bank accounts rather than payroll deductions. Self-employed workers are also eligible to join the program via the same process.
Are all business owners required to enroll in CalSavers? No, not necessarily. Enrollment in CalSavers is required of small businesses who employ more than five workers, but only if they do not already participate in a retirement benefits program. If you have already established a qualified retirement plan for employees, or decide to establish one through another provider, you will not be required to participate in CalSavers.
Otherwise, yes, small businesses will be required to enroll in CalSavers according to the following schedule:
Businesses with 100 or more employees should enroll by June 30, 2020
Businesses with 50 or more employees should enroll by June 30, 2021
Businesses with 5 or more employees should enroll by June 30, 2022
Of course, you can enroll earlier than those dates as well. Businesses that fail to comply with the mandate can be charged a penalty of 250 dollars per employee up to 90 days after the deadline, and 500 dollars per employee after 90 days have passed without compliance.
For more information on enrolling in CalSavers, or to discuss other retirement benefit options, give us a call. We can help you understand your options and select the course of action that best suits your needs.