Written by John Longstaff
In California, more than seven million private-sector workers lack a workplace-sponsored retirement plan.
As a result, many of California’s workers are retiring into poverty. More than half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living. Among households age 55 and older, about 29 percent have no retirement savings at all.
Experts know how to get workers to save: According to AARP, employees are 20 times more likely to save for retirement if they have access to a workplace payroll deduction savings plan.
So why aren’t employers offering them? Most business owners cite factors like the cost and complex administrative requirements preventing them from offering retirement plans. Many small businesses are challenged because they’re involved in so many aspects of running a company that it’s somewhat daunting for them to take on yet another task.
Well, there’s finally some relief from the price tag and administrative hardships of offering employees a retirement plan. A law signed by Gov. Jerry Brown in September 2016 has given those employers a simple way to help their workers save for retirement.
Senate Bill 1234 requires private sector employers to either provide an employee retirement savings plan, or give workers access to the new California Retirement Savings Program called CalSavers.
CalSavers Executive Director Katie Selenski says, “We’re offering this [plan] to people who don’t currently have access to a plan at work, because all the research shows that a simple nudge — having access at work to save for retirement through that automatic payroll deduction to ‘set it and forget it’ — makes a real difference. Furthermore, we’re trying to level the playing field and give people access to a simple way to save for retirement.”
In short, CalSavers is designed to allow private sector workers to voluntarily enroll in a minimal- cost, risk-appropriate IRA savings account. Under CalSavers, employees can make direct payroll contributions from their paycheck to their own personal IRA and choose their own contribution rate. A private sector financial firm will invest the monies under the supervision of a nine- member public board.
An employer’s only duties will be to make the CalSavers option available to their employees, and transmit the payroll contributions to the CalSavers Program Administrator. Employers will NOT have to match contributions or incur the liabilities that come with company sponsored retirement plans.
With the knowledge of this relatively new law, many employers are asking when their business might be affected?
CalSavers has posted the following guidelines regarding availability and potential mandated action:
— Employers with 100+ Employees: 12 months after program launch
— Employers with 50+ Employees: 24 months after program launch
— Employers with 5+ Employees: 36 months after program launch
I have long been a proponent of the fact that small businesses are crucial in helping workers to start saving for retirement. According to AARP, two-thirds of the workers who currently do NOT have access to retirement accounts work for businesses with fewer than 100 employees.
Although employers can establish their own retirement savings plan, taking advantage of CalSavers allows then to avoid the expenses and administrative requirements of an employer-sponsored plan.
Most importantly, CalSavers will not require employers to contribute to their employees’ CalSavers accounts. In fact, under ERISA (Employee Retirement Income Security Act) rules, CalSavers’ participating employers cannot match employee contributions.
”Many employers are motivated to set a good example, and have expressed a willingness to help employees save for their futures. The CalSavers Program is that rare opportunity that offers a long-term reward with little or no risk — for employers and employees alike. Enabling workers to save for their future retirement also promises a higher retention rate of the grateful citizens who live of our communities.
That’s not just good for your employees, it’s good for your business.
John Longstaff is a senior financial planner for The Planning Center in Fresno. For more information visit theplanningcenter.com.