Nearly 7 million California workers will be automatically enrolled in a retirement savings account Secure Choice under legislation Gov. Jerry Brown signed Thursday in an attempt to address growing fears that many workers will be financially unprepared to retire.
CalSavers provides employees access to a retirement savings program without the administrative complexity, fees, or fiduciary liability of existing options for employers. Any employer with at least five employees that doesn’t already offer a workplace retirement savings vehicle
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will be required to either begin offering one via the private market or provide their employees access to CalSavers. CalSavers will be operated solely through administrative fees, so there’s no cost to taxpayers. Eligible employers can register for CalSavers at any time and will be required to comply by the following deadlines:
|Size of business||Deadline|
|Over 100 employees||June 30, 2020|
|Over 50 employees||June 30, 2021|
|Five or more employees||June 30, 2022|
The CalSavers program ensures nearly all Californians have access to a workplace retirement savings program. CalSavers offers employees a completely voluntary, low cost, portable retirement savings vehicle with professionally managed investments and oversight from a public, transparent board of directors, chaired by the State Treasurer.
The legislation creates a state-run retirement program for workers who don’t have an employer-sponsored plan, many of them working in lower-wage positions. It requires employers to automatically enroll their workers and deduct money from each paycheck, though workers can opt out or set their own savings rate. The account could also be carried from job to job.
The bill would require the opt-out form disseminated by the Employment Development Department to be used to create an option for employees to elect to opt out of the program, as specified. The bill would, commencing 6 months after the program is ready to proceed, require the Employment Development Department to assess a penalty on any eligible employer that fails to make the program available to eligible employees, as specified. The bill also would make a statement of legislative findings. The bill would provide that the state would have no liability for the payment of the benefits under the program, as specified.
The bill, upon sufficient funds being made available through a nonprofit or private entity or federal funding, would require the board to conduct a market analysis to determine whether the necessary conditions for implementation can be met, as specified. The bill would require moneys made available to conduct the market analysis to be deposited in the Secure Choice Retirement Savings Program Fund which would be created in the State Treasury. The bill would provide that the operational provisions of the California Secure Choice Retirement Savings Trust Act shall be operative only if the board determines that, based on the market analysis, the provisions will be self-sustaining, and sufficient funds are made available through a nonprofit or private entity, federal funding, or the annual Budget Act, as specified, to allow the board to implement the program until the trust has sufficient funds to be self-sustaining. The bill would require the board to ensure that an insurance, annuity, or other funding mechanism is in place at all times that protects the value of individuals’ accounts and protects, indemnifies, and holds the state harmless at all times against any and all liability in connection with funding retirement benefits pursuant to these provisions.
The bill would prohibit the board from implementing the program if the IRA arrangements offered fail to qualify for the favorable federal income tax treatment ordinarily accorded to IRAs under the Internal Revenue Code, or if it is determined that the program is an employee benefit plan under the federal Employee Retirement Income Security Act of 1974. Business Insider * Text of Law
SB 1234, De León. Retirement savings plans. Existing federal law provides for tax-qualified retirement plans and individual retirement accounts or individual retirement annuities by which private citizens may save money for retirement.
This bill would enact the California Secure Choice Retirement Savings Trust Act, which would create the California Secure Choice Retirement Savings Trust to be administered by the California Secure Choice Retirement Savings Investment Board, which would also be established by the bill. The bill would require eligible employers, as defined, to offer a payroll deposit retirement savings arrangement so that eligible employees, as defined, could contribute a portion of their salary or wages to a retirement savings program account in the California Secure Choice Retirement Savings Program, as specified. The bill would require eligible employees to participate in the program, unless the employee opts out of the program, as specified. The bill would specify risk management and investment policies that the board would be subject to regarding administration of the program. The bill would require a specified percentage of the annual salary or wages of an eligible employee participating in the program to be deposited in the California Secure Choice Retirement Savings Trust, which would be segregated into a program fund and an administrative fund, both of which would be continuously appropriated to the board for purposes of the act. The bill would limit expenditures from the administrative fund, as specified. The bill would also authorize the board to establish a Gain and Loss Reserve Account within the program fund.
Note however, that Congress might “attack” this bill.
The stage is set for high-stakes court battle by rolling back an Obama-era rule that made it easier legally for states like California to set up 401(k)-type plans for private-sector workers whose jobs don’t offer such benefits
At issue is a decades-old consumer protection law, the Employee Retirement Income Security Act of 1974 — or ERISA, in industry jargon — that sets minimum standards for private-sector pension plans. Before Obama left office, the Department of Labor wrote regulations to make it easier for local governments and states to establish “auto IRAs” such as Secure Choice without running afoul of the law, waiving some of the requirements deemed too burdensome for small businesses.
Those Department of Labor rules are what Congress killed this week. US Senate kills ERISA requirements Mercury News 5.3.2017
Retirement Plans for Small Biz
IRS Publication 560
IRS Types of Retirement Plans
SIMPLE IRA Plans (Savings Incentive Match Plans for Employees)
SEP Plans (Simplified Employee Pension)
SARSEP Plans (Salary Reduction Simplified Employee Pension)
409A Nonqualified Deferred Compensation Plans