California Implements Mandatory Retirement Plan Access for Employees

In response to a nation-wide retirement crisis, many states are rolling out their own retirement plans. Joining the ranks of Oregon, Illinois, and others in releasing a state-sponsored IRA savings program, California Senate Bill 1234 officially mandated that all California employers with 5+ employees offer a retirement savings plan, beginning 2020 for the largest employers.

The deadline for offering retirement plans depends on how many employees a business has. The less employees you have the longer you have to offer a retirement plan.

If you have over 100 employees, you have until June 30, 2020 to offer a retirement plan for your employees.

If you have over 50 employees but under 100, you have until June 30, 2021 to offer a retirement plan for your employees.

If you have over 5 employees but under 50, you have until June 30, 2022 to offer a retirement plan for your employees.

Companies can either use a private retirement plan and administrator through the private market or register with California’s own new program called CalSavers Retriement Savings Program. When an employer registers for CalSavers, their employees will automatically be enrolled into the program. Registration for CalSavers started on July 1, 2019. CalSavers, based on Senate Bill 1234 was signed by Governor Brown in 2016 and was launched November 2018 with a pilot program before applying to all employers beginning July 1, 2019. The CalSavers program ensures nearly all Californians have access to a workplace retirement savings program.

The CalSavers program deducts 5% from the employee’s paycheck into a retirement account, with the savings rate increasing 1% yearly up to 8%. The retirement account is a Roth IRA, which means that the employee will not pay taxes withdrawing from the account, but contributions to the account are not tax deductible. If an employee does not want to participate, or wants to change their rate, they can opt out or change their rate on their own.

The only thing employers have to do is submit the contribution to the account and add or remove employees. There is no fee to employers to register or use the program. The program itself is payed for by a fee from the program users themselves.

The CalSavers Program is one option for employers who do not currently offer a retirement plan. It is important to consider all available options before deciding. Employers can generally keep any plan they currently have in effect, as long as it is offered to all employees by the deadline. This includes traditional IRAs and 401(k)s among other programs.