Back in 2016, the California legislature passed a law requiring employers to offer their workers a retirement plan. The goal was to provide nearly all Californians a way to plan for their own futures. Until now, the law has been gradually phased in, based upon employer size, with the largest employers first required to comply.
Now, nearly everyone will be subject to the mandate. If your company employs more than 5 full-time workers, you must comply with the mandate by June 30, 2022, or else face a penalty imposed by the Franchise Tax Board.
You can comply with the law by taking one of two steps: Either enroll in Calsavers, the state’s own retirement planning program, or establish a group retirement plan of your own. The following types of plans are all acceptable alternatives under the law:
- 401(a) – Qualified Plan (including profit-sharing plans and defined benefit plans)
- 401(k) plans (including multiple employer plans or pooled employer plans)
- 403(a) – Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan
- 408(k) – Simplified Employee Pension (SEP) plans
- 408(p) – Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan
- Payroll Deduction IRAs with Automatic Enrollment
Companies who fail to comply with the law by June 30 will face the following consequences:
- First, the Franchise Tax Board will send a letter of warning
- Then, those who remain non-compliant for 90 days will be penalized in the amount of $250 per eligible employee
- Finally, those who continue to be non-compliant beyond 180 days, the state will impose an additional penalty of $500 per employee
Clearly, you definitely want to get into compliance! Logging into the Calsavers website and signing up might seem like the easiest route, but it might not be the best fit for you or your employees. Take the time to explore your options first; this decision should benefit everyone as much as possible. Give us a call, and we will help you explore your options and choose a retirement plan structure that best suits your needs and budget.