Last week, we hosted a discussion about the new retirement requirements in California and Oregon, and how employers can make sure they are staying compliant. We hosted the discussion with Katie Selenski, Executive Director of CalSavers, and Gusto, the payroll and benefits platform for small businesses. Here’s the summary of our discussion:
What are the CalSavers and OregonSaves programs?
Katie from CalSavers: Recently, California, Oregon, and Illinois have passed similar laws intended to help employees save for retirement. (Editor's note: this post focuses on California and Oregon)
Under these laws, all employers in Oregon and employers with 5+ employees in California are required to either provide their employees with a retirement savings benefit or register for the new state-run programs. Employers can offer private plans such as a 401(k) or SEP-IRA, or they can facilitate CalSavers or OregonSaves.
Why are state governments getting involved in retirement programs?
Rosanna from Guideline: There’s a national retirement crisis. According to a 2018 study by Northwestern Mutual, 21% of Americans have no retirement savings, and approximately 10% have less than $5,000 in savings. In California alone, nearly 50% of workers are expected to retire into economic hardship, according to a Berkeley study.
State governments see the retirement crisis ahead and are trying to do something about it.
What is the CalSavers savings program?
Katie from CalSavers: If an employer facilitates CalSavers, the program automatically enrolls employees if they don't opt out within the 30 day notification window and contributions are deducted directly from employees’ paychecks into a personal Roth Individual Retirement Account (Roth IRA). Employees can opt out of back in at any time - it is completely voluntary for employees. Contributions are made post-tax and withdrawals can be taken tax-free after retirement. The Traditional (pre-tax) IRA option is coming soon.
This program is designed to be simple, low-cost, and portable. Savers can choose their own contribution rate and investments from a simplified investment menu or they can stick with the standard default settings, and they can take their savings account from job to job.
What are the differences between the CalSavers IRA and 401(k) plans?
Rosanna from Guideline: The first difference is who can set it up–a 401(k) is a retirement savings plan that must be set up by an employer, whereas an IRA is an individual retirement account, which is usually set up by an individual. The second difference is the contribution limit–a 401(k) allows employees to contribute directly from their paychecks in a tax-advantaged way, with a higher contribution limit than Roth IRAs. In 2019, the 401(k) limit is $19,000, which is $13,000 more than the Roth IRA limit of $6,000. The third difference is that employers can match 401(k) contributions, but there is no matching contribution option with IRAs.
How should small business owners think about the best option for them?
Katie from CalSavers: Surveys by AARP and Small Business Majority show that there are three primary impediments to many of them offering a plan today–cost, administrative burden, and fiduciary liability. CalSavers and the state programs address all three and we’re here for you if those are your challenges. CalSavers has no employer fees, it is easy to facilitate, and employers are not fiduciaries of the program.
But employers should also be aware of the differences between an IRA and a 401(k)–namely the higher contribution limits in 401(k)s and the possibility to provide an employer match–and should make their decision in accordance with what they can afford and their goals.
What are the key dates and deadlines small businesses should know about?
Katie from CalSavers: All employers are welcome to participate in CalSavers as of July 1, 2019. The deadlines for employers to either offer a retirement savings vehicle or register for CalSavers are as follows:
- June 30, 2020: Employers with more than 100 employees
- June 30, 2021: Employers with more than 50 employees
- June 30, 2022: Employers with 5 or more employees
Rosanna from Guideline: For OregonSaves, the deadlines for Employers with 10 or more employees have already passed, so those businesses should already be registered.
- Employers with 5-9 employees must register by Nov 15, 2019.
- Employers with 0-4 employees must register by May 15, 2020.
How does someone enroll in one of these state-run programs?
What about a 401(k)?
Rosanna from Guideline: One option is to set up a 401(k) with Guideline. A Guideline 401(k) is unique because we:
- Charge no monthly participant fees to active employees, unlike some other providers
- Have funds with some of the lowest expense ratios in the industry
- Help your employees pick the right level of risk in their portfolio
You can get started with Guideline at Guideline.com.