4 Things to Know About the Upcoming CalSavers Deadline
Siân Killingsworth / 21 Jun 2022 / Small Business 401k
In an effort to ensure that small California businesses are able to help their employees save for retirement, in 2019 the state launched its CalSavers retirement savings program with staggered deadlines for opt-ins by businesses of different sizes. The first deadline, which applied to small businesses with more than 50 employees, expired on June 30, 2021. The next legislated deadline of June 30, 2022, applies to all small California businesses that have five or more employees.
Small businesses in the Golden State need to weigh their options and decide if setting up their own 401(k) retirement savings plan is a better alternative than opting into the state retirement program. To start the conversation, here are four key things that employers should know about the state plan as the June 30 deadline approaches.
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Small Businesses Will Face Large Fines if They Fail to Comply
The state will first serve a notice on a non-compliant employer. If the employer has not established a state plan or another customized plan within 90 days after receiving the notice, it will face fines that begin at $250 for each eligible employee. After 180 days, the fine doubles to $500.
State-Run Plans are Roth IRAs
Like all Roth IRAs, the California state-run plan allows employees to annually contribute up to $6,000 of their after-tax income (or $7,000 if they are over 50 years old). Note that this is significantly less than the maximum amount participants in a private 401(k) plan can contribute. A 401(k) allows employees to save $20,500 and employers, who may contribute as both an employee AND an employer, can put away up to $61,000,
Roth plans also feature tax-preferred treatment for withdrawals that employees take after retirement.
State-Run Plans are Not Your Only Option
If you want to consider an alternative retirement plan for your small business, California allows you to offer traditional 401(k)s and other plans to meet your obligations under the mandate. These plans may feature additional benefits for employees, such as higher contribution limits, more investment choices, and greater tax advantages. 401(k) advantages include:
- High contribution maximums for employers: Employers can contribute $20,500 as an employee AND another $40,500 as the employer to their own nest eggs, totaling $61,000. That’s significantly better than the $6k a Roth IRA allows.
- With a 401(k) such as Ubiquity’s, employers may qualify for a $15,000 startup tax credit: Employers can get up to $5,000/year for each of the first three years, which may cover the cost of starting your 401(k) plan.
- $1,500 automatic enrollment tax credit: employers get an extra $500/year for each of the first three years when you add auto-enrollment.
The Mandate Will Benefit Millions of California Employees
The enactment of this legislation will have an almost immediate beneficial impact on more than 7.5 million California private-sector employees. It will encourage employers to expand employee options for retirement savings with low-cost and easy-to-understand retirement plans. The state anticipates that its plan and alternative 401(k) plans will enhance California’s reputation as a favorable location to start a small business.
To speak with a retirement expert on which plan is right for your small business, reach out to Ubiquity today.