20 · S A N TA C L A R I TA VA L L E Y B U S I N E S S J O U R N A L
J U N E 2022
Employers Face Deadline For Offering Employee Retirement Plan BY KEVIN DURKIN
Vice President Employee Benefits and Qualified Plans at LBW Insurance and Financial Services
I
n the state of California, employers are running short on time to comply with the requirement to provide a qualified retirement savings plan for their employees. Legislation passed in 2016, referred to as the CalSavers law, had a rolling set of compliance deadlines starting with employers with 100 or more employees. Their deadline came and went on June 30, 2020. Now, all California employers with 5 or more employees must comply with this requirement by June 30, 2022.
Employers Have Choices
As a part of the 2016 legislation, California promised to create a public option that would give employers easy access to a qualified individual retirement saving vehicle. The program is called CalSavers and it is the default program into which all employers (with 5 or more employees) must enroll their employees
if they’re not offering some other qualified plan such as a 401(k), 403(b), or a SIMPLE IRA. To access CalSavers, employers can visit calsavers. com. Of course, employers can opt not to utilize the CalSavers option and instead provide a private plan. 401(k), 403(b), and other qualifying plans offer distinct differences in advisory services, cost, benefits, and administrative efforts required in comparison to CalSavers.
Penalties For Not Complying
For employers who fail to enroll their employees in CalSavers or initiate a private plan, fines will be levied. Once an employer receives notice from the State, they have 90 days to come into compli-
ance. At 90 days, if the employer has still not enrolled in a plan, then the fines will be $250 per eligible employee. At 180 days, if the employer is still not in compliance, a second round of fines will be charged at $500 per eligible employee.
Carefully Consider the Options
For some employers, CalSavers will suffice. There are no employer fees and no fiduciary responsibility. For enrolled savers, there’s flexibility to opt out or back in at any time. If they leave the employer, the CalSavers Roth IRA belongs to them. And for inexperienced savers, selecting investments is made very simple. But CalSavers isn’t the best choice for all firms or all em-
ployees. For employers who are looking to compete for talent, a robust retirement saving plan may be a critical component of the overall compensation offering. Many candidates look at potential employers and expect to see 401(k) plans with an employer match. CalSavers doesn’t allow for employer contributions and the maximum contribution an individual can make in their CalSavers IRA is $6,000 per year. Conversely, the maximum contribution for a SIMPLE IRA is $14,000 and for a 401(k) it is $22,500 per year. Another significant distinction between a 401(k) plan and CalSavers is the fact that higher compensated workers (those with a Modified Adjusted Gross Income over $129,000, or $204,000 if married filing jointly) aren’t allowed to participate in an IRA and will be responsible for opting out of CalSavers. This means the employer will be leaving its higher compensated employees without any re-
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