Small Employers Be Aware: Retirement Savings Deadline Plan Approaching

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Calling all small employers in California! By June 30, 2022, employers with 5 to 50 California-based employees must sponsor a qualified private retirement employee-retirement plan or participate in the CalSavers Retirement Savings Program (“CalSavers”). Critically, a company’s state of incorporation or headquarters location is irrelevant when assessing whether an employee is based in California.

What is a qualified private retirement plan?

Let’s start with “qualified private retirement plans.” Readers are likely to be familiar with at least some of the following.

  • 401(a) – Qualified Plan (including profit-sharing plans and defined benefit plans)
  • 401(k) plans (including multiple employer plans or pooled employer plans)
  • 403(a) – Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan
  • 408(k) – Simplified Employee Pension (“SEP”) plans
  • 408(p) – Savings Incentive Match Plan for Employees of Small Employers (“SIMPLE”) IRA Plan
  • Payroll deduction Individual Retirement Accounts (“IRA”) with automatic enrollment

Detailing each of these types of retirement plans is beyond the scope of this post, but suffice it to say that if you provide any of the above to your employees, you will comply with the requirement.

What is CalSavers?

Readers are less likely to be aware of CalSavers. Simply put, CalSavers is a California program that provides employers a way to set up an IRA for each eligible employee. CalSavers is not meant to be a conventional retirement plan. Instead, it is a state-run program that intends to eliminate the difficulties involved in sponsoring a traditional retirement plan, which can be particularly tricky for smaller employers.

If an employer elects the CalSavers route, there are no employer fees and employers do not make contributions to employee accounts.

What Obligations Do/Don’t Employers Have?

For those California employers that do not already offer a private qualified workplace retirement savings plan, they must either (1) begin offering one or (2) register for CalSavers.

  • Employers that currently offer (or will offer) a qualified plan, are not required to register for CalSavers. However, they must still “opt out” of CalSavers by declaring their exemption before the compliance deadline of June 30, 2022. Employers may do so by going to this link here. If you are participating in CalSavers, you’ll have up to 30 days after registration to add employees to the list.

Importantly, employers are not permitted to make contributions on behalf of, or as a match to, employee contributions in this program. If an employer wants to make contributions to a retirement plan on behalf of their employees, they should consider offering an employer-sponsored retirement plan.

Penalties for Non-Compliance

Employers will be served with failure-to-comply notices if they do not register their status with CalSavers by the appointed deadline. If a company fails to comply within 90 days from receiving such notification, the State will fine it $250 per employee. After 180 days, the penalty increases to $750 per employee.

Employers can register or report an exemption here.

Contact us for more information on retirement plans and programs by e-mailing us at info@mnklawyers.com.

This material is provided for informational purposes only. It is not intended to constitute legal advice, nor does it create a client-lawyer relationship between MNK Law and any recipient. Recipients should consult with counsel before taking any actions based on the information contained within this material.

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