By: Osborne Rincon CPAs
The outlook for retirement is continually changing, and the stats are real. A great majority of Americans aren't adequately saving for retirement – if they are saving at all. Social Security will soon begin to pay less than 100% of promised benefits if Congress takes no action. This is why many states are stepping up to facilitate plans for retirement, and California is among them.
California Senate Bill 1234, signed by Governor Brown in 2016, began the development of CalSavers – a retirement savings plan for private sector workers whose employers do not offer a retirement plan. The number of people that you employ – 5 to 49, 50 to 99, or 100+ individuals – marks your compliance deadline of June 30, 2020, 2021 or 2022.
California employers with at least five employees will be required to either provide a private market retirement plan for their employees or register for CalSavers to enable their employees to make direct payroll contributions to their individual retirement account, which is portable if they leave their current employment.
There are no fees for employers to facilitate the program, but financial penalties may be imposed for non-compliance after a notice is served. Employers are not allowed to make employer contributions to the plan – just simply facilitate the employees’ contributions.
While there are no direct costs to the employer, you will need to devote some time to take care of administrative duties so you have everything in order when it's your time to be in compliance with California’s new requirements. These duties include meeting with your payroll provider to ensure deduction codes are set up, establishing accounting procedures to track employee contributions, and informing your employees of the plan details for them to consider opting-in or out based on their personal situation.
We know far too well that deadlines come up all too quickly – especially ones that may be 2-3 years away. Therefore, now might be a good time to start having discussions with your Financial Planner or CPA about various retirement plan options that your business may have, and also possible tax savings as there may be additional benefits to you as the business owner/employee if you establish your own private market retirement plan for your business rather than the state-sponsored CalSavers plan.
You won't know for sure unless you do your homework in advance of a compliance notice. For more information on the CalSavers program, refer to the California State Treasurer’s website.
For more information contact Osborne Rincon CPAs, Corry Hunter at 760-777-9805.