Employers - California Mandatory Retirement Plan 1st Deadline Coming Soon

CalSavers is California’s new retirement savings program for workers in the private sector who do not currently have a way to save at work.

Eligible employers with at least five employees that do not already have an employer-sponsored retirement plan will be required to begin offering one via the private market or provide their employees with access to CalSavers by the following deadlines: 

• Over 100 employees – September 30, 2020
  
• Over 50 employees – June 30, 2021
  
• Five or more employees – June 30, 2022
  

The cost of CalSavers investments (consisting of an underlying fund fee, a state fee, and a program administration fee) could be approximately twice the cost of a typical 401(k) investment.

Please contact us for more information on starting a company retirement plan that works best for you and your business.

Here are some key features of CalSavers that eligible California employers should be aware of: 

• CalSavers applies to private for-profit and non-profit employers, but not to federal or state governmental entities. 
  
  
• Eligible employers with at least five employees that do not already have an employer-sponsored retirement plan will be required to begin offering one via the private market or provide their employees with access to CalSavers by the following deadlines: 
  
  
• • Over 100 employees – September 30, 2020
    
  • Over 50 employees – June 30, 2021
    
  • Five or more employees – June 30, 2022
    
    
• CalSavers will send a notice to eligible employers prior to their mandatory registration deadline containing an access code and a notice that may be forwarded to employees. Employers must log on to the CalSavers site and either certify their exemption or enroll in the program. 
  
  
• CalSavers will contact the employees directly (using employer provided basic employee roster information) to instruct them about how to opt-out or enroll online.
  
  
• Employees receiving W-2 wages who are at least 18 years old must be automatically enrolled in the CalSavers program after 30 days of employment. 
  
  
• The employer will deduct a default employee contribution rate of 5% of after-tax wages from each paycheck and deposit it into the employee’s CalSaver account. The rate of contribution will automatically increase each year by 1% to a maximum contribution level of 8%. The maximum contribution limit for 2020 is $6,000. 
  
  
• Employer contributions are not permitted. 
  
  
• The employer penalties per eligible employee for failure to comply are: 
  
  
• • $250 after 90 days of receiving the CalSavers notification
    
    
  • $500 after 180 days or more after receiving the CalSavers notification 
    
    

Employers that do not already have an employer-sponsored retirement plan may want to examine implementing one based on the following considerations: 

• The administrative functions an employer must fulfill to participate in the CalSavers program are similar to those of a 401(k) plan. 
  
  
• Employee 401(k) contributions are tax deferred and the savings limit is much larger ($19,500 for 2020). 
  
  
• Employer contributions are permitted and are deductible by the employer. 
  
  
• Offering a plan can help attract and retain talented employees.
  
  
• Qualified plans offer increased retirement savings for business owners. 
  
  
• The cost of CalSavers investments (consisting of an underlying fund fee, a state fee, and a program administration fee) could be approximately twice the cost of a typical 401(k) investment. 
  
  

Getting Started

Which retirement plan is right for your business?

Businesses with no employees 

As a business owner, you know your company’s success takes preparation and effort. Your retirement years are no different. The appropriate business retirement plan can incorporate the flexibility you need while helping you to prepare for your retirement – as well as attract and retain quality employees. 

Once you’ve determined your objectives, you can evaluate your options based on the needs of your business and employees. Then you can begin selecting the right retirement plan for your business. 
If you’re like many other self-employed individuals, you probably want to know how much you can save for retirement each year and how your contributions will affect your taxes, now and in retirement. There are three primary options available to help you achieve your goals: 

• SEP IRA 
  
  • This plan allows you to make an annual contribution of the lesser of 25% of your eligible compensation or $57,000. 
    
• Owner-only 401(k) 
  
  • This plan may offer the ability to contribute more than the dollar limits of a SEP IRA at the same compensation: 25% plus salary deferral contributions (pretax or Roth) of up to $19,500, plus a catch-up contribution of up to $$6,500 if age 50 or older; maximum $57,000 or $63,500 if age 50 or older. 
    
• Owner-only DB 
  
  • Contributions to this plan can significantly exceed the dollar limits of the SEP IRA and the Owner-only 401(k), even more than $100,000 annually. This retirement plan can be combined with an Owner-only 401(k) for even greater contributions and flexibility or for Roth salary deferrals. 
    

Businesses with employeesMany business owners are primarily concerned with how much they can contribute to their own retirement plan and how much they’re required to contribute for employees. In most situations, one of the following three options is an appropriate fit. You’ll notice a marked increase in both the contribution limits for 2020 and the disparity between what owners and employees receive. 

• SIMPLE IRA 
  
  • Plan participants may defer up to $13,500 pretax or $16,500 if age 50 and older, with a required employer match up to 3% of compensation to contributing employees or a 2% contribution to all eligible employees. 
    
    
• Safe Harbor 401(k) 
  
  
  • Plan participants may defer up to $19,500 (pretax or Roth) or $26,000 if age 50 and older, with a required employer match of up to 4% of compensation* to contributing employees or a 3% contribution to all eligible employees. The employer may make additional profit-sharing contributions. 
    
    
• Custom plans 
  
  • Options include age-weighted, “tiered” and other specialized profit-sharing plans, defined benefit plans and combinations of these plans, including 401(k) plans. These plans allow maximum contributions for owners and select employees, often without significant increases in the contributions required for employees. 
    

Next steps 
Whether you have employees or not, the retirement plan you choose may have a large impact on your personal and professional life. I can help you weigh your options and educate you on the different plan types available for you and your business.

For More Information, Contact:

Derick M Roberts 

Financial Advisor – Edward Jones

2223 East Wellington Avenue Suite 310
Santa Ana, CA 92701-3161 

714-543-9632

derick.roberts@edwardjones.com