This year, retirement plans will be required for California employers with five or more employees. The legislation passed in 2016 required all employers with five or more employees to offer a retirement savings account. This law also applies to nonprofit organizations. 2022 brings the final implementation phase requiring organizations with 5-49 employees to comply by June 30, 2022. If you already sponsor an employee-retirement plan, you are meeting this requirement.
The deadline for implementation for organizations with more than 49 employees has passed, and the Franchise Tax Board is in the process of enforcement. More information on how to respond if you have received a notice is on this web page: https://www.ftb.ca.gov/pay/collections/calsavers/index.html.
Decisions to Make
The barriers to offering retirement plans for smaller organizations usually have to do with the plan costs. A state-run plan called CalSavers has been put in place to streamline the implementation process and offer employers a no-cost option. The alternative to comply with the new law is to set up a traditional 401(k) plan or pension plan.
In 2018, CalSavers launched as a way for employers to comply with the new legislation. Organizations can sign up directly on the CalSavers website – www.calsavers.com. The legal structure of the CalSavers plan is a Roth IRA. Like a 401k plan, the employee specifies a percentage to be deducted from their paycheck. The employer must enroll their employees when they open the plan or when a new employee is hired, but employees can opt out. The CalSavers plan does not allow for employer contributions, and the investment choices are limited. While these limitations exist, all the costs are paid by the employee and deducted from their account.
Future Compliance Considerations
Regardless of the number of participants, employee benefit plans require filing a Form 5500. There is a 5500EZ for those plans with under 100 participants. Once you are above 100 participants, the plan has the additional requirement to be audited. Haskell & White offers consulting in the area of Employee Benefit Plans and conducts audits to meet the compliance requirements of the IRS and Department of Labor.
We suggest contacting a benefits specialist to discuss the various options for retirement plans and how the costs would compare to utilizing the state plan. Please get in touch with your engagement team if you would like recommendations on who to contact, or if you aren’t a client of Haskell & White, reach out to us through a contact form.