As you might already know, California law now requires all employers with more than 5 employees to either offer their workers a qualified retirement program (such as a 401k) or enroll in the state-sponsored CalSavers program. Passed in 2016, the law is designed to address the needs of 7 million Californians who lack a retirement plan. For the past five years, the law has been gradually phased in, and now smaller employers must comply.
If you employ between 5 and 49 workers, the deadline to comply with the CalSavers mandate will be June 30, 2022. Compliance will consist of either establishing a retirement plan or enrolling in a plan with CalSavers.
Up to this point, the state has simply encouraged employers to comply. But now, penalties for lack of compliance will begin to take effect. Steps taken will include:
- First, the Franchise Tax Board will send a letter to companies not in compliance
- Then, companies that remain non-compliant for 90 days will be penalized in the amount of $250 per eligible employee
- Then, if non-compliance extends beyond 180 days, the state will impose an additional penalty of $500 per employee
Enrolling your company in a retirement plan through CalSavers might appear, on the surface, to be the easiest way to comply with the law. However, that doesn’t mean that CalSavers is necessarily the best fit for you or your employees. The program imposes a number of regulations that some employers find to be too much of a hassle.
The other option is to explore retirement plan options with a qualified benefits planning professional, who can explain the pros and cons of different plans. The following plans are acceptable alternatives under the law:
- 401(a) – Qualified Plan (including profit-sharing plans and defined benefit plans)
- 401(k) plans (including multiple employer plans or pooled employer plans)
- 403(a) – Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan
- 408(k) – Simplified Employee Pension (SEP) plans
- 408(p) – Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan
- Payroll Deduction IRAs with Automatic Enrollment
We can help with this. Schedule a consultation with us, and we will help you understand your options across a variety of different plans.