If your organization is located in California with five or more employees, you're now required to offer a qualified workplace retirement savings plan. If you don't, the clock is ticking on penalties.
Like many states, California has been rolling out a mandatory state-run retirement plan for businesses that don't offer one to their employees. Called CalSavers, the state plan had staggered deadlines based on number of employees.
The final deadline — for companies with five or more employees — passed on June 30, 2022. That means penalties starting at $250 per employee will soon be levied on non-compliant employers who have not sponsored a plan of their own, 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
Though the CalSavers deadlines may have passed, employers should still be able to register via the program's Employer Portal.
To comply with the law, employers can also explore options beyond the state-mandated plan, which only offers a Roth IRA after-tax contribution model that can exclude higher-income employees.
A company-sponsored plan provides greater control over the benefits offered, including type of plan (for example, a 401(k), SEP or SIMPLE), investment options and annual contribution limits. Employers should also factor in the time required to administer a state plan versus one that's company sponsored, as well as any value-added benefits such as employee financial wellness tools and support.
Choosing the right employee retirement plan is not a decision to be made lightly, so employers must carefully balance compliance penalties with conducting proper due diligence.
CalSavers by the numbers
As of May 31, 2022, nearly 57,000 employers had registered to participate in the California state retirement savings program. Of that number, over 12,000 had begun payroll deductions. Another 86,436 employers were exempt from the legislation through sponsorship of an alternate plan such as those offered by ADP.
Looking at plan participants, 262,312 employees had funded their accounts, while 33% of eligible employees elected to opt out.
Why retirement benefits are in your bottom line's best interest
It's no secret that many employees find it challenging to put money aside for retirement. But why should that matter to employers? Three reasons, according to the 2022 PwC Employee Financial Wellness Survey.
- Employee engagement. According to the survey, 69 percent of workers feeling financial uncertainty are less likely to feel valued at work.
- Productivity. Seventy-six percent say financial worries have negatively impacted their productivity on the job.
- Retention. The PwC survey found that financially stressed workers are twice as likely to be job hunting.
Companies that don't offer retirement benefits may be finding it increasingly difficult to attract top talent. In fact, many U.S. employers are strengthening their retirement plans to remain competitive in a difficult labor market. If you're struggling with hiring and retaining the employees you need, it may be time to take a hard look at your benefits offerings — especially your retirement plan.
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ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor. ADPRS-20220629-3363