A Small Business Owner’s Guide to CalSavers

Siân Killingsworth / 7 Jun 2022 / Retirement News

A Small Business Owner’s Guide to CalSavers

Answering your top questions about California’s retirement savings program vs. alternative plans

In an effort to help Californians save for a financially secure future, the state of California is rolling out an initiative requiring all employers with five or more employees offer some type of retirement plan for their workers.

CalSavers—the state-sponsored plan—offers a basic Roth IRA to help employees building their retirement savings. But with low contribution limits, limited investments, and limited tax advantages, is it the best solution for empowering your team’s financial future?

At Ubiquity Retirement + Savings, we’ve been helping small businesses and their employees grow their nest eggs for over two decades with affordable, customized 401(k) solutions. While we believe the state’s program is an important step toward ending the looming retirement crisis in California, a 401(k) might be better alternative for your small business and your employees’ futures.

Why is the state of California offering a retirement plan?

55 million American workers—more than 40% of full-time private-sector employees—don’t have access to a workplace retirement savings plan.

Why is this such problem?

As very few employers offer pensions and Social Security is drying up —with funds expected to be depleted as soon as 2035, it’s more responsibility is for saving falls more on the individual than ever before.

Since 2012, at least 45 states have implemented or considered establishing state-facilitated retirement savings programs–with the states of Oregon, Illinois, and our home state of California leading the charge.

In July 2019, California began rolling out CalSavers, the state-sponsored IRA program for the 7.4 million private-sector workers in the state who do not have access to an employer-sponsored retirement savings plan. As of April 30, 2021,  more than 10,000 employers were registered allowing nearly 140,000 individuals to save for their future.

We are rapidly approaching the next CalSavers deadline on June 30, 2021–employers in California with more than 50 employees will be required to enroll in the state-run Roth IRA or offer a private option.

How does CalSavers work?

CalSavers is an automatic-enrollment, payroll deduction Roth IRA. We know this sounds like a lot of financial jargon–so let’s breakdown what that means.

Automatic Enrollment

This means, if your business opts into the state provided IRA, after a 30-day grace period, eligible employees will be automatically start saving for the future through a 5% contribution from their payroll.

How does this work in practice?

Added employees will a notification from CalSavers and will have 30 days to decide to customize their account, opt out of the program, or be automatically enrolled with the standard savings choices.

Payroll Deduction

This means participating employees contribute a portion of their salary into their IRA automatically from each paycheck.

Roth IRA

A Roth IRA is an individual retirement account where the saver pays taxes on money going into your account, and (if you meet certain IRS criteria) all future withdrawals are tax-free.

Roth IRAs have a couple important rules and restrictions to keep in mind.

• You can’t contribute to a Roth IRA if you make too much money. The income limit for singles in 2021 is $140,000.
• The amount you can contribute each year changes, based on inflation. In 2021, the contribution limit is $6,000 a year unless you are age 50 or older—in which case, you can deposit up to $7,000.

Click here to read more about 2021 contribution limits

How much does the state-run plan cost my business?

There are no employer fees in the CalSavers program–nor are you allowed to make tax deductible matching contributions, as you could in a 401(k) plan.

Your employees, on the other hand, will pay annual asset-based administration fee of 0.825% to 0.95%, depending on their investment choices. These fees will be pulled directly from their assets in their account.

What happens if an employer does not register for a qualified plan by the deadline?

If your business does not register for CalSavers, or an alternative qualified private retirement plan, you may be charged a a $250 penalty per employee starting 90 days after the deadline. The fine increases to $500 per employee 180 days after the deadline.

What are the benefits of enrolling in the state-run plan?

There are several advantages for companies to choose the California’s IRA product including:

• No cost to the employer
• No fiduciary risk
• No investment management responsibilities.

What are the potential drawbacks of enrolling in California’s state provided option?

The access to workplace retirement savings plans offered by Calsavers is a big step forward in solving the looming retirement crisis. However, there are significant drawbacks when compared to alternative eligible 401(k) plans from a private provider like Ubiquity Retirement + Savings.

• The contribution limit for a 401(k) is more than three times higher than that of an IRA.

Higher contribution rates allow savers to take advantage of the power of compound interest, meaning the more money that is saved, the more it can grow over time.

• Missing out on significant tax benefits

Did you know small businesses that sponsor retirement plans for their employees are rewarded by the government? Thanks to the SECURE Act of 2019, small businesses can qualify for up to $16,500 in tax credits over a three-year period by starting a qualified retirement plan, such as a 401(k) plan, with auto-enrollment. Employers choosing the state provided option are not eligible for these benefits.

• CalSavers charges your employees asset-based fees.

Currently CalSavers does not offer the choice to select a flat-fee program, which provides more transparency and ultimately lower costs as savings accumulate. By charging an asset-based fee, your employees are increasingly penalized based on how much they save.

What are the alternatives to the CalSavers program?

Businesses can offer a qualified retirement plan from a private provider, which could allow for more savings while providing tax incentives and greater customization.

Let’s see how the state mandate IRA stacks up against Ubiquity’s most popular small business savings vehicle.

1. This limit is subject to cost-of-living increases for later years (for prior years, refer to this cost-of–living adjustment table.)

2. Available to eligible employers who have less than 100 employees who received at least $5,000 in compensation in the previous year, had at least one participant who was a non-highly compensated employee, and in the last 3-years did not contribute to a benefit plan for your employees through a plan sponsored by you or a member of a controlled group that includes you.

Choose the better path to savings

If you’re looking for the maximum savings potential and tax benefit, Ubiquity provides customizable 401(k) plans that act as a CalSavers alternative. For over two decades we have pioneered flat-fee retirement plans, designed for small businesses, all delivered online to you and your employees. That means no hidden fees or AUM charges in the fine print. We have helped hundreds of thousands of employees save towards their future.

The content of this blog is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. Be sure to consult a qualified financial adviser or tax professional for official guidance.   

What Are the Safe Harbor Plan Rules for 2022?

Siân Killingsworth / 9 Mar 2022 / 401(k) Plan Information, Retirement News, Safe Harbor

See what rule changes are in place for small business Safe Harbor 401(k) plans for 2022.

It’s helpful to know which IRS rules and limits apply from year to year, whether you currently offer a Safe Harbor 401(k) or you are exploring options to open a small business 401(k) plan in 2022. If you have an existing 401(k) that is not a Safe Harbor, making the switch is as easy as adding a plan amendment. As one of the leading providers of small business retirement plans, Ubiquity can help you do just that.

Since 1999, small businesses have counted on Ubiquity Retirement + Savings to administer affordable retirement solutions, including Safe Harbor 401(k)s. Whether you’re a solopreneur, startup owner, or employ fewer than 100 people, we keep up on the latest plan rules to keep you in compliance.

General Safe Harbor 401(k) Rules

If you’ve failed ADP and ACP nondiscrimination tests or if IRS compliance is of concern to you, then it’s worth looking into the Safe Harbor 401(k) plan. These plans allow you to bypass testing when you accept a few ground rules that ensure fairness for Non-Highly Compensated Employees (NHCEs) and Highly Compensated Employees (HCEs).

• Employers must provide a matching or nonelective contribution to all 401(k)-eligible employees
• The contribution must be immediately vested
• On average, HCEs cannot contribute more than two percentage points greater than NHCEs

2022 Contribution Limits

The upper limit for 401(k) contribution limits, including for Safe Harbor plans, went up in 2022:

• Both traditional and Safe Harbor 401(k) plan limits increase by $1,000 to $20,500 in 2022
• Those age 50 or older can add another $6,500 in catch-up contributions
• The employer/employee maximum is $61,000 – up $3,000 from 2021
• The maximum employee limit for calculating contributions increased by $15,000 to $305,000 in 2022
• The threshold for key employee top-heavy testing increased $15,000 to $200,000
• The threshold for highly compensated employee nondiscrimination testing increased $15,000 to $200,000

SECURE Act Changes Applicable to 2022

The SECURE Act (first in effect for the 2020 plan year) created the following changes that remain in place for 2022:

• A 15% maximum automatic contribution rate for QACA Safe Harbor 401(k)s

Qualified Automatic Contribution Arrangements Safe Harbor plans previously auto-enrolled participants at a rate of 3-10%, increasing contributions in 1% annual increments to a 10% maximum. Companies may opt to increase to a 15% maximum if they so choose. Changes can be made to the plan as late as the end of 2022.

• No need for nonelective plan notice requirements

Prior to the SECURE Act, employers were required to notify all Safe Harbor plan participants of their eligibility, prior to the beginning of the year. Employers must still notify employees of a matching contribution plan in order to satisfy ACP test requirements. However, notification is not mandatory to satisfy ADP requirements when nonelective contributions are made on the employees’ behalf. Other notices – like eligible automatic contribution arrangements, auto-enrollment opt-outs, and mid-year contribution elimination – are still required.

• Retroactive Safe Harbor with nonelective contributions allowed

Employers may retroactively apply a 3% nonelective contribution to the year up until December 1, 2022.

Employers may retroactively apply a 4% nonelective contribution to the year up until December 31, 2022.

Contact Ubiquity for Safe Harbor 401(k) Administration in 2022

It’s not too late to start a Safe Harbor 401(k) plan for 2022. Contact us to customize a retirement savings solution for your small business.

2022 Retirement Plan Contribution Limits

Siân Killingsworth / 12 Nov 2021 / 401(k) Plan Information, IRA Resources, Retirement News

Curious how much you can invest toward your retirement in 2022?

Download the Ubiquity Retirement + Savings 2022 Contribution Guide

The IRS has announced the 2022 contribution limits for retirement and health savings accounts. This includes contribution limits for 401(k) and 403(b) plans, income limits for IRA contribution deductibility, and the salary threshold to classify “key” and “highly compensated employees”

While contribution limits for individual retirement accounts (IRAs) won’t increase from 2021 to 2022, there is good news for retirement savers who participate in a workplace employment plan like a 401(k).

Let’s take a look at the updated limits below:

2022 401(k) and 403(b) individual contribution limits (IRS 402(g) Limit)

The IRS has also set limits for the total amount that may be contributed to your retirement savings 401(k) account from all sources combined (IRS section 415 limit). This includes any employer matching or profit-sharing contributions, and any employee after-tax contributions. For 2022, this limit has increased from $58,000 to a new maximum of $61,000.

Every plan is different, so it’s important to refer to your Plan Document for any compensation or other applicable limits.

2022 Highly Compensated and Key Employee definitions and limits

2022 Roth and Traditional IRA contribution limits

2022 Traditional IRA modified adjusted gross income limit for partial deductibility

2022 Roth IRA modified adjusted gross income phase-out ranges

2022 Simple IRA contribution limits

2022 Health Savings Accounts (HSA) contribution limits

**Catch-up contributions can be made at any time during the year in which the HSA participant turns 55.

If you need more detailed guidance, see IRS Notice 2021-61.

Introducing: Simply Retirement by Principal® 

Siân Killingsworth / 25 Aug 2020 / Retirement News

Today, we’re excited to announce the launch of Simply Retirement by Principal® with plan services by Ubiquity Retirement + Savings®–a 100% digital retirement solution for financial professionals and their small business clients looking to start retirement plans.

Simply Retirement by Principal® is an online 401(k) plan designed to be the most straightforward, budget-friendly approach to setting up a retirement plan—with education and resources to help businesses with 100 employees or less feel more confident along the way.

Since our inception in 1999, Ubiquity’s mission has been to empower small businesses and their employees to create a more secure financial future and peace of mind, by leveraging technology with affordable and effective retirement solutions, and world-class customer support. Principal has a time-honored legacy of helping people and companies around the world build, protect, and advance their financial wellbeing.

We’re proud to be working with Principal, pairing their 75+ years of experience with the simplicity and cost-effectiveness of Ubiquity’s online platform. By working together, we can bring greater retirement plan access to the 5 million U.S. small businesses not currently offering their employees this essential benefit.

Click here to read today’s press release introducing Simply Retirement by Principal® or visit simplyretirement.com/financial-professionals to learn more.

What You Need to Know About the SECURE Act

Siân Killingsworth / 17 Jan 2020 / Retirement News, Ubiquity Insights

The SECURE Act, which stands for the Setting Every Community Up for Retirement Enhancement Act, is the biggest piece of retirement legislation in over a decade. Provisions from the bill, which originally passed through the House in May 2019, were wrapped into a larger government spending package and signed into law on December 20, 2019.

This piece of important retirement legislation includes policy changes to retirement plans, annuities, pension plans, and 529 college savings accounts.

Key changes from The SECURE Act include:

• Increasing tax credits for small business owners to set up and run retirement plans
• Introducing incentives for new plans with auto-enrollment
• Raising the required minimum distribution (RMD) age for retirement accounts to 72 (up from 70½)
• Allowing long-term, part-time workers to participate in 401(k) plans
• Expanding options for multiple, unrelated businesses to partner under a single retirement plan (MEPs)
• Permitting parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption
• Allowing withdrawals from 529 plans to repay student loans

Most SECURE Act provisions went into effect on January 1, 2020. Let’s dive deeper into some of the biggest changes ahead for retirement savers and small business owners:

Small business owners can receive a tax credit for starting a retirement plan, up to $16,500

• Small business owners who haven’t established a retirement plan are in luck! The new law provides a start-up retirement plan credit for smaller employers of $250 per non-highly compensated employee eligible to participate in a workplace retirement plan at work. The minimum credit is $500 and the maximum credit is $5,000.
• This credit would apply to small businesses with up to 100 employees over a 3-year period beginning after December 31, 2019 and applies to 401(k), SIMPLE, SEP, and profit-sharing plans.
• If your retirement plan includes automatic enrollment to encourage participation, you may also receive an additional credit of up to $500 for the first three years of the plan. This new credit is also available to employers that convert an existing 401(k) plan to an automatic enrollment design.

Required minimum distributions (RMDs) now begin at age 72

• Americans are living and working longer than ever before, and this change reflects that shift. Savers will no longer be required to withdraw assets from IRAs and 401(k)s at age 70½.
• RMDs now begin at age 72 for individuals who turn 70½ in 2020.
• If you turned age 70½ in 2019 and have already begun taking your RMDs, we recommend speaking to your financial advisor regarding any 2020 distributions.

You can make IRA contributions beyond age 70½

• As with the new RMD rule, the SECURE Act addresses the increasing number of Americans working past traditional retirement age.
• As of the 2020 tax year, you can continue to contribute to your traditional IRA past age 70½, as long as you are still working.
• Savers can make their 2020 tax year contributions until April 15, 2021.

Small business owners will find it easier to pool together to offer retirement plans

• According to a 2018 study by the U.S. Bureau of Labor Statistics, nearly 40 million private-sector employees do not have access to a retirement plan through their workplace.
• In an attempt to increase retirement access, the new law allows unrelated businesses to join together under an open multiple employer program called a MEP.
• The new law, which goes into effect in 2021, eliminates the IRS’s “one bad apple” rule. This removes the risk of being penalized if one employer in your group fails to satisfy the tax qualification rules for the MEP.

Inherited IRA distributions must be taken within 10 years

• Previously, if you inherited an IRA or 401(k), you could “stretch” your distributions and tax payments out over your life expectancy. This allowed beneficiaries to use stretch IRAs as reliable income sources as they benefited from the tax-advantaged gains.
• Rules have changed for IRAs inherited from original owners who have passed away on or after January 1, 2020. Beneficiaries, generally, must withdraw all plan assets from an inherited retirement plan within 10 years following the death of the account holder.
• The 10-year rule does not apply to: a surviving spouse or a minor child; a disabled or chronically ill beneficiary; and beneficiaries who are less than 10 years younger than the original IRA owner or 401(k) participant.
• If you have an IRA that you planned to leave to beneficiaries, we recommend working with your estate planning attorney or financial advisor to address how might this change your strategy.
• If you’re a beneficiary who has inherited an IRA or 401(k) and the original owner passed away prior to January 1, 2020, you don’t need to make any changes.

You can withdraw money from your retirement account penalty-free upon the birth or adoption of a child

• Bringing a new member into the family can be expensive. The SECURE Act allows savers to take a “birth or adoption distribution” of up to $5,000 from a qualified retirement plan, such as a 401(k) or an IRA, without incurring an early withdrawal penalty.
• This distribution must be taken within one year of the date of birth or adoption finalization.
• If the parents have separate retirement accounts, they can each withdraw $5,000 to help defray the cost of a new child.

529 funds can now be used to pay down student loan debt

• Sometimes families have funds remaining in their college savings plans after their student graduates. Under the new law, you can now use a 529 savings account to pay up to $10,000 in student debt over the course of the student’s lifetime.
• To expand the benefit of tax-advantaged college plans to those who take vocational training, a 529 savings plan may now also be used to pay for qualified apprenticeship programs.

Increased penalty for failure to file federal returns

• Failed to file your tax returns? You may now face a steeper punishment. The Secure Act increases the penalty for failure to file affected federal tax returns to the lesser of: (1) $400 or (2) 100% of the amount of tax due.

• There are also increased penalties for failure to file retirement plan returns, including a higher IRS Form 5500 non-filer penalty.

How else could The SECURE Act impact your retirement?

• Raising the cap on auto enrollment contributions from 10% to 15% in employer-sponsored retirement plans

If you were automatically enrolled in your retirement plan at work, your plan also may have an automatic escalation feature that increases your retirement contributions each year. Under the new law, the amount withheld for your retirement account could go up every year until you are contributing 15% of your income to your retirement savings plan.

The bottom line on the SECURE Act

Changes in life, the tax code, and your own financial circumstances are common–and are a good reminder to update your retirement and estate planning strategies every few years. As the SECURE Act brings changes to retirement, take some time (and work with your financial advisor, if you have one) to help set personal and financial goals.

And if you’re a small business owner not opening a retirement plan, there’s never been a better time to take advantage of the tax benefits of a 401(k). Connect to one of our retirement experts today to learn more.

Most Americans are unprepared for retirement — here’s how to fix that

Chad Parks / 20 Aug 2019 / Retirement News

This article originally appeared on Marketwatch

The extended U.S. government shutdown that occurred earlier this year shined an unflattering spotlight on our country’s financial preparedness.

It revealed that many people who wouldn’t typically be considered impoverished are still clearly living paycheck to paycheck. This certainly doesn’t bode well for them saving enough money to be financially independent in retirement.

Now, more than ever, retirement is built on personal savings and it’s up to the individual — not the government or employers — to make that dream a reality. The notion of working your entire life while simultaneously stashing away money for your future is something I frequently refer to as, “the great retirement experiment.” Let’s take a look at how we got here.

How our modern retirement system came to be

Before the 20th century, our country’s economy was based almost entirely on agriculture. Americans didn’t have hopes or dreams about retirement in the 1700s, 1800s or even early 1900s. They simply worked until they no longer could, and hoped that their families would take care of them in old age.

The retirement system that we know of today didn’t come into existence until after World War II. Following the war, companies hired people in droves and provided pensions. At the time, this was the best concept available for retirement security and many people from this generation benefited. My grandparents, for example, retired with a full pension and my father retired with a partial pension. As time went on, however, companies realized funding these programs entailed a lot of complexity and decided to freeze pensions or stop offering them altogether.

In the late 1970s, the government recognized these resources wouldn’t sufficiently support people through their retirement years, so it implemented tax-deferred savings accounts and the 401(k) was born shortly thereafter in the early 1980s.

The broken three-legged stool of retirement

Over many decades, we have come to think of retirement as a three-legged stool consisting of Social Security, a pension and personal savings, all working together to fund your retirement. Today, the three-legged stool looks more like a pogo stick.

Social Security, the first leg, is projected to have a reduction in benefits by 2034, if no changes are made today. This program was introduced in 1935 and originally designed to help those in dire need of financial assistance. It was never intended to be relied on as heavily as it is today as a primary means of retirement income.

Personal pensions, the second leg, have recently seen a staggering, swift disappearance. This chart, provided by CNN Business with data from Pension Benefit Guaranty Corporation, depicts the shrinking population of workers covered by company pensions. Today, the majority of workers don’t expect to see a pension unless they’re unionized or government employees.

With pensions nearly extinct and Social Security looking less and less reliable as a means of income, the onus is now largely on individual citizens to save enough money during their lifetimes for retirement, serving as the vital “pogo stick” leg of the stool. Realistically speaking, can people bear that burden?

This is why we call it the great retirement experiment. Although the outcome is unknown, it must be brought to light.

The challenge is that not everyone takes a diligent and responsible approach to saving for retirement on their own, nor should they be expected to. We have asked everyday people to become both financial and investment experts, which ultimately may set them up for failure. Not to mention, people are now living longer than ever before and working later in life to fund retirement or catch up on lost savings.

How defaulting to Social Security could change it all

So, how can we solve the issue of underfunded retirements? While there is no surefire solution, I believe a significant adjustment to our Social Security system could alleviate much of the burden currently placed on everyday Americans.

Let’s keep Social Security as we know it today, the same. However, let’s augment the required Social Security savings from both the employer and the employee by doubling the amount saved, which would add an additional 12.4% (6.2% employer contribution, 6.2% personal contribution, doubling it would increase it to 24.8%) of income contributed to retirement. This could be credited into an account that is in the individual’s name so they have complete control over the investments, but won’t be able to access to the funds until normal retirement age.

Retirement accounts like 401(k)s and IRAs would still be in play, just not as the main source of income. This also solves the portability issues with retirement accounts. If the Social Security account is already under an individual’s ownership, it doesn’t matter how often you change jobs.

Bottom line, our retirement system is not as good as it gets. Savers must be aware of the flaws in the existing retirement savings experiment as well as the great responsibility of saving for their own future.