All too often, small businesses in California get stuck on retirement plans. With a focus on daily operations, thinking about retirement gets pushed to the side, but this critical piece of financial planning should not be ignored. Employers can help employees save for retirement, and employees should be thinking to the future and what they will need to retire.
Some of the most common retirement plans for small businesses in California come down to CalSavers or a 401(k). We are here to help employers and employees navigate these options to find something that suits their needs.
CalSavers is a retirement savings program for Californians working in the private sector. It is made for workers whose employers do not offer their own retirement plan. It was created in 2016, and operates at no taxpayer expense, with a mission to ensure all Californians have a path to financial security in retirement. CalSavers is for employers with five or more employees, if they do not already have a workplace retirement plan.
As of June 1, 2023 account holders will be charged $18 annually, this is a combination of a combination of a Fixed Account Fee and Annualized Asset-Based Fees.
Additionally, as of July 1, 2023 the Total Annualized Asset-Based Fees will be reduced to a range of 0.325% to 0.49%, this is a fee for the annual costs and expenses for account maintenance and administration including costs associated with each Investment Option.
Find up-to-date information here.
Through CalSavers, the savings rate increases by one percent each year until it reaches eight percent, by default. Employees can maintain the standard options for saving rates and investments or choose their own. As soon as an employer registers, employees will be automatically enrolled with the standard options if they do not customize within the first 30 days. CalSavers investment plans include Money Market Funds, Target Date Series, one ESG fund, one bond fund, or two stock funds.
Employees can decide if they want to participate in the 401(k) plan, and how much they want to contribute.
401(k)s cost an employer a small amount of money, in administrative costs, per-participant charges, and miscellaneous fees. Employers who choose to match or contribute to employee funds will also have to pay for the matching portion.
Employers who do not offer an alternative plan, who have more than five employees, must offer CalSavers.
Contributions are maxed out at $6,000 per year in 2022, or $7,000 for those over age 50.
Contributions are made with after-tax dollars.
Qualifying withdrawals of contributions and earnings are not subject to income tax.
At what age do you have to take distributions?
Under CalSavers, there is no requirement to take distributions while the account owner is alive.
A 401(k) is an optional type of employer-sponsored plan.
At what age do you have to take distributions?
Distributions must begin no later than age 70 and a half.
The initial three-year phase rollout deadline to enroll in Calsavers has passed. For any employer that has not met the previous mandated deadlines then they are out of compliance and need to register immediately. If the employer does not, they will face enforcement action which includes financial penalties.Â
Employers who have 5 or more employees needed to register by December 31st, 2023 to enroll.Â
Employers with 1 to 4 employees as of January 1st 2023 have until December 31st 2025 to register.
More information on deadlines can be found here.Â
Employers who miss the deadline or fail to allow employees to participate will receive notice. They are also subject to enforcement action which may include financial penalties.Â
Employers who do not give their employees the option to enroll may face penalties of $260 per employee after 90 days of notice. After 180 days of notice, that increases to $500 per employee. Employees will not face the consequences of choosing not to enroll.
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