By: Dorothy M. Cociu, RHU, REBC, GBA, RPA, OCAHU V.P. Communications
First Published: The County of Orange Insurance News, March-April, 2020
Background
Back in 2016, Governor Brown signed Senate Bill 1234, which required the state’s Secure Choice Retirement Savings Investment Board to begin developing a workplace retirement savings program, known as CalSavers, for private sector workers whose employers do not offer a retirement plan. The program is required to have minimal administrative requirements for employers, and state law protects employers from any liability or fiduciary responsibilities. State law also requires that the program be exempt from ERISA.
This program launched a pilot initiative with a small group of participating employers in November, 2018, and beginning July, 2019, all employers could register for the program. This program requires all California employers with 5 or employees to either provide a retirement plan for their workers, or register for CalSavers and facilitate employees’ contributions to Individual Retirement Accounts.
Compliance Deadlines
CalSavers initiated compliance deadlines, depending on business size. For employers with over 100 employees, the deadline is June 30, 2020. For employers with 50-99 employees, the deadline is June 30, 2021, and for small employers with 5-49 employees, the deadline is June 30, 2022.
I’ve personally heard fears and frustration from some California small employers, although I’m not sure those employers clearly understand what’s required of them.
Cost to Employer
So is there a cost to the employer to offer CalSavers? “Although employers do not have to pay a fee to participate in CalSavers,” stated Marilyn Monahan of Monahan Law Office, “there are administrative responsibilities the employer has to be prepared to implement. Planning ahead is essential.”
These administrative requirements result in an indirect cost to the employer, as someone will have to do the work from the employer’s office.
With the large employer (100 + employees) deadline fast approaching, I wanted to provide some helpful information to help calm the concerns. Smaller employers have more time, but still, they need to be prepared, as it will take some clerical and payroll-related training for those designated to register and later, process the contributions, etc.
CalSavers vs Company-Sponsored Retirement Plans
So what is the difference between setting up a CalSavers program and implementing your own retirement program for your employees? Money, time and flexibility. Setting up an employer-based retirement plan is not easy, and generally takes several months to set up. However, most employers with over 100 employees already have some type of retirement program. I personally think the largest percentage of enrollees will be the employers with under 100 employees. Only four in ten small businesses reportedly offer any type of retirement program to their employees. Lawmakers argue that this makes it very difficult for California employees working for small companies to properly prepare for retirement.
Common statistics show that Americans are 15-times more likely to save for retirement when they have a savings plan or other retirement plan available at work.
If an employer decides to set up their own company-sponsored retirement program, I highly recommend that they use the services of a qualified benefits consultant to assist them. Many of the smaller employers, I’m guessing, may opt to just sign up for CalSavers. Or they may sign up for CalSavers because they don’t know that their benefit consultants could, in many circumstances, assist them in this function. Therefore, this is something consultants can and should consider discussing with their employer clients. I do want to caution both consultants and employers that anyone assisting with a retirement plan should be qualified to do so. Dabbling in pensions is dangerous, to say the least. Health brokers that don’t do retirement plans may be tempted to jump into this market as an additional revenue stream. I’d recommend you team up with another consultant or broker who has a lot of experience selling and servicing retirement plans. Many can be sold only with securities licenses.
Qualified employer-sponsored retirement plans include: Qualified pension plans; 401(k) plans; 403(a) plans; 403(b) plans; Simplified Employee Pension (SEP) plans; Savings Incentive Match Plan for Employees (SIMPLE) plans; Payroll deduction IRAs with automatic enrollment.
“For employers that do not want to bear the administrative burden and cost of setting up their own retirement plan, CalSavers is an opportunity to offer employees another way to save for their future,” commented Marilyn Monahan.
Most employers use an outside payroll service, and these service providers may be able to assist with the majority of the processing work. “If you use a payroll service,” commented Marilyn Monahan, “consult with the vendor in advance to be certain the vendor can assist with the CalSavers implementation and on-going administration, and coordinate– and define– the responsibilities of the vendor and the employer in each step of the process. Confirm whether there will be an additional charge, and amend the services agreement as necessary.”
In my experience, most payroll companies will charge for this, as they tend to charge for each additional step and deduction the employer makes. But, as Marilyn stated, it’s always best to do your homework up front, and not have any last minute surprises, especially financially.
It’s also important to note that the state program is likely to have less bells and whistles than an employer-sponsored retirement plan. Employers may decide that starting their own plan will allow them to offer a plan that meets both the employer and employee needs.
Employer Requirements—Whether Enrolling or Exempt
It’s important that employers understand that they are being asked to either enroll in CalSavers, or indicate that they are exempt if they already offer a retirement plan. It is unclear to me whether this is mandatory or just requested (this is a question I will ask at the OCAHU meeting on March 10th, but an email from CalSavers on February 20 stated “Employers that offer a qualified plan will register an exemption. Basically they’re going through the registration link and they will enter their EIN, CA payroll tax account number and access code. It will then ask them if they offer a qualified plan and then what type of plan. That will complete the exemption process.”). Employers should log onto the state’s website and begin their registration or exemption. Employers will be required to (as the email from CalSavers said) enter their California Employer Payroll Tax Account Number from the EDD, their Federal Employer Identification Number (EIN/TIN) and a CalSavers access code. There is help along the way for questions on the online registration process.
Employers will also need to set up delegates or payroll representatives, then create a payroll list with eligible, participating employees. Of course, after setup , the employer will have to have someone assigned to manage the account maintenance, like submitting contributions and updating payroll with new hires, etc. into the program.
Payroll-Deducted Plan Setup
CalSavers was set up to be a payroll-deducted IRA plan, and auto-enrolling employees at a 5% contribution rate, with a 1% auto escalation, up to 8% of the employee’s salary. Employees will be able to opt out of the program at any time, and the account can follow them if they change jobs in California.
Automatic Enrollment
Employees who don’t opt out of the plan will automatically be enrolled 30 days after their hire date or eligibility date, and their contributions will be fully vested from the first day. This is more favorable than some employer-sponsored retirement plans to the employees.
Can Business Owners Participate?
Business owners in California can enroll in CalSavers also, as long as they are also an employee on payroll. If they are not an employee but would like to participate, they will be allowed to do so, but contributions would have to come from a bank account rather than from the normal payroll deduction.
More Information
If employers need more information on the CalSavers program, they can speak to a representative at 855 650-6916, or email clientservices@calsavers.com. In addition, I’d recommend that members reading this article attend the OCAHU March lunch meeting, on March 10, from 11-1 at JT Schmid’s Anaheim, where OCAHU will host Jason Gilbert, representing CalSavers, to educate our members on the program. You may even want to invite your clients. ##
Author’s Note: This article is not intended to provide legal advice. I have gathered public information to assist you in understanding the basics of the employer mandate that requires employers not offering a retirement plan to register for the state-run CalSavers program.
