If your organization is located in California and has five or more employees, you must now offer a qualified workplace retirement savings plan. If you don’t, time is running out for penalties.
Like many states, California has implemented a mandatory state-run pension plan for companies that don’t offer one to their employees. Called CalSavers, the state’s plan had staggered timelines based on the number of employees.
The final deadline – for businesses with five or more employees – has passed June 30, 2022. This means penalties starting at $250 per employee will soon be imposed on non-compliant employers who have not sponsored their own plan, allowed eligible employees to participate in CalSavers, or were certified as exempt from the law.
It’s never too late to get back into compliance with California law
Although CalSavers deadlines may have passed, employers should still be able to enroll through the program Employer Portal.
To comply with the law, employers can also explore options beyond the state-mandated plan, which only offers an after-tax Roth IRA contribution model that may exclude higher-income employees.
A company-sponsored plan offers greater control over the benefits offered, including the type of plan (for example, a 401(k), SEP, or SIMPLE), investment options, and annual contribution limits. Employers should also consider the time required to administer a state plan versus a company-sponsored plan, as well as any value-added benefits such as tools and financial wellness support for employees. .
Choosing the right employee retirement plan is not a decision to be taken lightly, so employers must carefully balance compliance penalties with conducting proper due diligence.
CalSavers in numbers
As of May 31, 2022, nearly 57,000 employers have registered to participate in the California State Retirement Savings Program. Of that number, more than 12,000 had started payroll deductions. Another 86,436 employers have been exempted from the legislation thanks to the sponsorship of an alternative plan such as those offered by ADP.
As for plan participants, 262,312 employees had funded their accounts, while 33% of eligible employees opted out.
Why retirement benefits are in the best interest of your bottom line
It’s no secret that many employees find it difficult to save money for their retirement. But why should this matter to employers? Three reasons, according to PwC Employee Financial Wellness Survey 2022.
- Employee contract. According to the survey, 69% of workers who feel financial uncertainty are less likely to feel valued at work.
- Productivity. Seventy-six percent say financial worries have had a negative impact on their work productivity.
- Retention. The PwC survey found that workers under financial stress are twice as likely to seek employment.
Companies that don’t offer retirement benefits may find it increasingly difficult to attract top talent. In fact, many American employers are reinforcement their retirement plans to stay competitive in a tough job market. If you’re having trouble hiring and keeping the employees you need, it might be time to take a hard look at your benefits, especially your pension plan.
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Registered Representative of ADP Broker Dealer, Inc. (ADP BD), Member FINRA, an Affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068 and Associated Person of ADP Strategic Plan Services, LLC (SPS) an investment registered with the SEC Adviser. Registration does not imply a certain level of skill or service.
ADP, Inc. and its affiliates do not provide investment, tax or legal advice to individuals. Nothing in this article is intended to be, nor should it be construed, as particular advice or a recommendation or suggestion whether or not you take any particular action. Questions about how the laws, regulations, guidelines, provisions of your plan or member services may apply to you should be directed to your plan administrator or your legal, tax or financial. ADPRS-20220629-3363