California has adopted a state run retirement savings plan, known as “CalSavers”.
Starting in 2020 year, California now requires employers who don’t already offer a qualifying employer-sponsored retirement plan, such as 401(k), 403(b), Pension Plan, SEP or SIMPLE Plan to start offering the CalSavers program.
The program rolls out in a three-phase registration deadline, starting this summer, mandated with penalties for non-compliance.
NOTE - The program initial deadline for employers of 100+ employees has been extended from June 30th to September 30th.
There are a few dates to be aware of for other plan options:
As a Certified Plan Fiduciary Advisor, and CFP Pro, Bradley Shammas is available to consult and compare CalSavers with other options that would fit your business best.
CalSavers is an individual ROTH IRA (Individual Retirement Account) option that must be offered by businesses with 5 or more employees.
All contributions are enter as a non-deductible Roth IRA.
All employees, age 18 and over, are immediately eligible to participate.
There are no eligibility requirements based on hours worked after the employee has completed a least 30 days of service. 2
CalSavers currently offers five investment options:
Asset based fees range from 0.825% to 0.95%3
Unless an employee specifically opts-out of the CalSavers program, contributions to the plan should be set to automatically be deducted from employee’s paycheck:
Employees may opt-out of both the auto-enrollment and the elected deferral rate.
All monies are always 100% vested!
1 CalSavers.com / Employer / Program Details
2 CalSavers.com / Employee / Investments
3 CalSavers.com / About / FAQ
A lot of employers want to know:
Are there penalties for not enrolling into CalSavers?
Short Answer: Yes. 4
As posted on the CalSavers website:
Each eligible employer that, without good cause, fails to allow its eligible employees to participate in CalSavers, on or before 90 days after service of notice of its failure to comply, shall pay a penalty of $250 per eligible employee if noncompliance extends 90 days or more after the notice, and if found to be in noncompliance 180 days or more after the notice, an additional penalty of $500 per eligible employee.
So, if an employer with 101 employees who does not enroll by the June 2020 deadline receives a notice and does not take action with 3 months, they could be fined as much as $25,250. If they wait another three months from then, that fine could increase to a total of $50,500.
The foremost way for a business to avoid having to offer a state-run plan is by offering a qualifying employer-sponsored retirement plan, such as 401(k), 403(b), Pension Plan, SEP or SIMPLE Plan .
Among many reasons to consider a 401k over the CalSavers plan is to allow the most valued employees to benefit.
Because CalSavers accounts are Roth IRA’s, the accounts are subject to federal Roth IRA contribution limits:
Contribution limits based on Modified Adjusted Gross Income6
$122,000 - $137,000
$193,000 - $203,000
$124,000 - $139,000
$196,000 - $206,000
High income earners who pass the phase-out limit will not be able to contribute to the CalSavers program.
Even if an employer or key highly compensated employees are ineligible to contribute to the Roth IRA, the employer is still required to offer the CalSavers plan to all eligible employees (unless the employer offers a qualifying employer sponsored plan).
As we know it based on today’s tax laws.
This outline is for informational purposes only and has not provided legal or tax advice.
Employers should consider consulting with their tax, business and legal advisors before adopting either the CalSaver plan or an Employer Sponsored 401(k).
For more detailed information on CalSavers, visit www.calsavers.com.
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