Understanding California’s Mandated Retirement Savings Plans
In 2016, California passed legislation requiring employers that do not sponsor an employee retirement savings plan to participate in a state-run retirement program. This program, known as CalSavers, allows employees to defer wages to a state-run individual retirement savings account. Designed to ensure future financial security for California residents, CalSavers’ phase-in period began in 2020.
Last year, California employers with over 100 employees that did not offer a retirement savings plan were required to enroll in the CalSavers program. This year, California employers with 50 or more employees were required to enroll by June 30, 2021. California employers with 5 or more employees will need to enroll in CalSavers by June 30, 2022. Employers that already sponsor or participate in a retirement plan can apply for an exemption on the CalSavers website.
Many Adults Do Not Have Adequate Retirement Savings
A recent survey found that 38% of adults aged 18-29 and 27% of adults aged 30-44 have no retirement savings. 17% of adults between the ages of 45 and 59 and 12% of adults aged 60 and over have no financial savings for retirement. While this survey shows that 88% of people nearing retirement have at least some form of retirement savings, only 51% of this age group believe they have enough money to retire.
How Much Money to Save for Retirement
It’s not uncommon for people to wonder how much money they need to save for retirement. Although the answer varies based on lifestyle and age at the time of retirement, experts agree that most should save at least 80% of their pre-retirement salary. This means that if an individual makes $100,000 per year pre-retirement, they should plan to save $80,000 for each year of retirement to ensure a comfortable lifestyle.
Individuals may choose to adjust their savings up or down based on factors like other sources of income (Social Security, pensions, and income from part-time employment), medical issues, and lifestyle choices. For example, individuals that plan to travel after retirement will need to save more money.
What Employers Need to Do Now
California employers that have not yet enrolled in CalSavers should do so now. Registration is currently open for all employers. Employers that offer an employee retirement savings plan can exempt their business on the CalSavers website.
There is no fee or fiduciary responsibility for employers to participate in CalSavers and it only takes a few minutes to enroll or apply for an exemption. It’s important that employers ensure compliance as soon as possible. Employers that do not comply may be fined by the California Franchise Tax Board.
The new California mandate has caused many employers to reconsider the benefits they offer. Adding an employee retirement savings plan to an existing benefits package improves employee retention and could make the business eligible for tax credits.
MEBO helps employers develop employee benefit plans that fit their needs and budget. In addition to employee health benefits, our team can help set-up a 401K. Please contact us for information about our services.
