California Employers are now mandated by law to offer a retirement plan for their employees or join the CalSavers plan. Beginning July 2019 employers can voluntarily start participating in CalSavers.
The mandated deadlines are as follows:
June 30, 2020 (extended to Sept 30, 2020) – Businesses with 100+ employees.
June 30, 2021 – Businesses with 50+ employees.
June 30, 2022 – Businesses with 5+ employees.
CalSavers definition of an employee:
- Age 18, paid by W-2, and worked for 30 days from D.O.H.
Roth IRA’s only:
- IRS 2022 Limit $6,000.00.
Employees will be Auto-Enrolled at 5% of employee’s compensation:
- Auto-Escalated up 1% each year after that up to 8%.
- They have the option to opt-out, or make a different election.
Employees are responsible for knowing if they are eligible for the Roth IRA:
- The MAGI (Federal Modified. Adjusted Gross Income) Limits still apply.
- $137,000 for single filers and $203,000 for married couples filing jointly.
No correction for the employees that forgot to opt-out or that didn’t qualify. CA is handling the record-keeping for CalSavers. The employees pay all fees associated with CalSavers:
- Estimated at 0.82% to 0.95% of their account balance.
Employer Administration with CalSavers:
- Required to submit a full employee census to CalSavers (keep them updated).
- Track all eligible employees.
- Provide enrollment packet to all employees 30 days after DOH.
- If no election is made in the next 30 days (60 days from DOH).
- Set up the 5% Auto Enroll in payroll to send the Roth IRA contribution to CalSavers.
- Track in payroll and implement the Auto Escalate of 1% each year up to 8%.
- Auto Escalate employees that did not make a separate election to opt-out of auto escalation.
- Hold Open Enrollment every year (Oct 1st – Nov. 30th).
- Re Auto Enroll anyone that is not participating for 6 months or longer.
- 6 month look back each year for Auto Escalate.
- Track if employee has been participating for 6 months with no auto escalation.
- Provide 60 day notice that they will be auto escalated Jan 1st if they do not opt-out again.
Proposed penalties to the Employer for non-compliance with the law:
- 90 Days after notice of non-compliance.
- $250 per eligible employee.
- 180 Days after notice of non-compliance.
- $500 per eligible employee.
What can Employers do to Avoid CalSavers?
- Establish your own independent Employer Sponsored 401(k) Plan.
- Administratively more manageable.
- Employee: Age 21 with 1 Year of Service and 1000 hours.
- Semi Annual Entry: January 1st and July 1st.
- Your choice to add Auto Enroll and Auto Escalation.
- Benefits of a 401(K) Plan.
- Employees can save $20,500 or $27,000 with catch-up of all pre-tax dollars.
- They can choose Roth with no income limitations.
- Employer can provide a tax deductible Employer Match or Profit Sharing Contribution.
- Tax Credit up to $5,000 for setting up plan each year for 3 years.
- Employee Attraction and Retention Tool.
- All money in the trust is protected from bankruptcy, creditors, etc…
- All 401(k) Plan fees are tax deductible to the business.
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Rocklin, CA 95677