CalSavers and Employer Sponsored 401(k)s
CalSavers: Also known as California Secure Choice, is a state run auto enroll Roth IRA launched in 2019 as a response to California legislation for all types of employers to offer some type of retirement plan to employees.
Who- California business owners with 5 or more employees
What- Business owners will be required to set up a retirement plan or enroll employees into CalSavers
When- Employers with 100 or more employees will be required by June 30th, 2020, 50 employees by June 30th, 2021, and 5 or more employees by June 2022
Why- This is due to the rise in costs of California’s aging population, including medical and other state programs.
How- Employers will be identified using EDD and FUTA payroll records. Employers with a private retirement plan are exempt and only need to certify that they offer a retirement plan to their employees.
I’m an Employer, Now What? - Simple Impact can help you determine whether if it makes sense for you to join CalSavers or establish a 401k retirement plan for your business.
First off, it's an either/or question. As the employer, if you participate in CalSavers you do not need to establish a separate retirement plan for your business. If your business has an existing retirement plan, then you do not need to join CalSavers, however you will need to certify with the state through the California Secure Choice website, that you have an existing plan and are offering it to your employees.
Employers may choose to enroll in CalSavers on the internet or with phone support. The CalSavers employee education is the fiduciary responsibility of the employer. Although many will likely direct their employees to the ‘do-it-yourself’ website. There, the employee can choose to opt out, or review and select investment options. Employees will access their account via the Internet. There are some very nice people at 855-650-6918, to help enrollees, and offer language including Spanish speaking assistance.
Shan, founder of Simple Impact, is a fan of retirement plan design for the owner of the business. Often these diligent individuals have worked so hard for a very long time, and now there is finally a way to reward themselves. By paying less taxes and simultaneously building employee loyalty, business owners’ lives can be simple and in alignment with long term goals.
There are 12 different retirement plans. Appropriate plans for business owners that fit the California mandate include Simple IRA's, SEP IRAs, and (Shan’s favorite) the 401(k). We strongly urge the 401K as it allows for the most options including larger contributions, larger annual contributions, taxable or tax deferred contributions, 401k loans provisions, employer matching contributions, vesting schedules and profit sharing to reward the best employees making a difference to the bottom line of the business.
As the Advisor, Simple Impact’s role is as a 401k care coordinator. You can also think of the advisor as your quarterback. It's important to have a point person who knows the players, and how to navigate the field to get the best result. Our role begins with helping the employer to gather and organize critical information including the Company Census Sample. We take time and listen carefully to understand what the employer needs and share best practices to create a successful plan for their industry.
Based on the employer goals, we choose an actuary to design a plan that fits the plan sponsor/employer’s needs. We also evaluate recordkeepers that will best fit the employer's needs. Common needs include the size of business(es), number of employees covered, ages of employees and owners, expected or desired annual contributions and integration with employer’s benefit package (just to name a few).
Once the census data has been analyzed, we set a follow up meeting to meet with the plan sponsor to show them anticipated costs, benefits, players, and the plan design to closely meet their needs.
As a fiduciary for our clients, our services include one or more of the following activities: reviewing a plan’s investment objective, assist in the development of an investment policy statement, provide additional monitoring and reporting recommendations on plan design, recommended monitor investment options, construct model portfolios, suggestions on allocations, provide additional participant education, general financial and investment information, coordinate educational investment materials and communication strategy for the business owners, conduct one on one retirement planning participant meetings adding benefit to an employer of choice, maintain fiduciary files, perform compliance oversight of costs on administrative providers. And, most importantly, Chief Hand-holder for the business owner.
There are several activities an advisor doesn't do including, but not limited to: ensuring contributions from the plan sponsor are timely deposited, rendering advice on voting proxies, providing legal or tax advice, and distributing summary plan documents required by law to plan participants.
Retirement plans should be beneficial for the business owner as much as the employee. Having a retirement plan in place is a key tool for helping business owners’ cash out of their business in a tax efficient manner when it comes time to enjoy the fruits of all the years of hard labor. If you’ve been contemplating if you should start a retirement plan, the choice has now been made for you. Choose CalSavers or a private plan, to help you embrace and live intentionally the next exciting chapter of life.
Key Terminology to Know: Although this was written for California businesses, this terminology applies to all retirement plans regardless of location or state. Here is the key terminology that business owners should be aware of when creating a retirement plan for their business.
In a 401(k) the employer will set up legal documents known as the Retirement Trust with its own tax ID. In these documents, the employer will be referred to as the plan sponsor and fiduciary.
The Retirement Trust is the plan design for the businesses. We use documents created by the legal teams of the record keeper or actuaries. Like many legal documents, there are boilerplate templates. However, the best plan design will take into consideration the needs of the employer and their employees. In Simple Impact’s experience, the
devil angel is in the details.
Actuaries, aka: TPA (Third Party Actuaries/Administrator) are the number crunchers to make sure the plan is maintained and compliant with ERISA laws. We create 401k's that follow ERISA. ERISA is a federal law that sets minimum standards for voluntary established retirement private industry plans to protect participants. Like any specialized bookkeeper, record keepers and actuaries have special training in the retirement field. Plan design by an experienced and knowledgeable actuary, brings huge value to a plan sponsor/employer. Good plan design, that our clients have first-hand experienced, can be expressed as nothing but magical.
The record keepers maintain details such as employee and employer contributions, account numbers, investments loans, withdrawals, and other administrative information. For very small plans, CPA's often act as the record keeper. If you do not have a CPA or record keeper Simple Impact can provide a recommendation.
Today, record keeping duties are often bundled together with the asset custodian. The asset custodian will offer a selection of investments based on the plan sponsors requests or needs. They will often construct an investment portfolio and offer it as a plan model that is consistent with the participants risk profile, investment objective, and individual preferences. The custodian is the entity that sends you your statement, provides online access for viewing participant investments, and has specialized resources and teams for employee education. Specialized resources include language assistance. Custodians also send out the tax notices for additions, withdrawals, and rollovers.
As the assets grow inside of the retirement plan, the record keeper or actuaries will recommend an ERISA Fidelity bond purchase. ERISA bonds and the Pension Benefit Guaranty Corporation ensure retirement benefits if the fiduciary mishandles the funds entrusted to them.