With our nation in a retirement savings crisis, California has joined seven other states in implementing a savings plan for employees: the CalSavers Retirement Savings Program. It is a state-run retirement plan for all companies that do not offer an employee-sponsored plan such as a 401(k), 403(b), SEP, SIMPLE or Payroll Deduction IRA with automatic enrollment.
By June 30, 2020, employers with 100 or more employees that do not currently sponsor a retirement plan must facilitate the CalSavers Program. Employers with more than 50 employees that do not sponsor a retirement plan by June 30, 2021, must comply; and the deadline for employers without a sponsored retirement plan with five or more employees is June 30, 2022.
Below are some important highlights of the CalSavers Program:
These are default settings and the employee may make changes at any time.
- Individual Roth (after-tax contribution) IRA for those 18 years or older, employed in California who have a social security number or taxpayer identification number. Participants may recharacterize their contributions to a Traditional IRA
- Portable
- Default contribution rate is 5 percent, which may be changed at any time.
- Annual automatic contribution increases by 1 percent per year until 8 percent
- Zero employer fees.
- Possible state and program administration fees: 0.05% for the state; 0.75% for the program administrator, and investment fees that range from 0.025%-0.15%.
- Investment options consist of Money Market, Target Date Funds, Core Bond Fund, Global Equity Fund, and a Sustainable Balanced Fund
The Employer
Employers are responsible for providing information about their employees to the CalSavers Program administrator, setting up payroll deductions and remitting them to the CalSavers Program administrator and keeping records. The employer is not responsible for enrolling employees, managing investment options, processing distributions, or managing employee changes such as contact information and beneficiary changes. The employer is not charged any fees for the program.
The Employee
Employees will automatically be enrolled by their employer at 5 percent of gross pay. A 30-day notice will be sent to the employee providing three options: set up an individual account; do nothing; or opt out. If the employee initiates the account set up, they will be able to manage their contributions and select their investments available on the CalSavers platform. If the employee does nothing, the contributions will be placed in a money market account until the balance reaches $1,000. Any amount over $1,000 will be invested in a target date fund appropriate for their age; all funds are held in a Roth IRA in the name of the employee.
If an employee should change jobs or become self-employed, they may continue contributing to the CalSavers account by setting up an ACH direct deposit to the account.
Michele Sarna is a financial advisor at Beacon Pointe and can be reached at (760) 932.0930 or [email protected]. To learn more about CalSavers, contact Michele or visit www.calsavers.com.
This has been provided for informational purposes only and should not be considered as investment advice or as a recommendation. Opinions expressed herein are subject to change without notice. BPA & BPWA have exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, BPA & BPWA have not independently verified, or attested to, the accuracy or authenticity of the information. BPA & BPWA shall not be liable to customers or anyone else for the inaccuracy or non-authenticity of the information or for any errors of omission in content regardless of the cause of such inaccuracy, non-authenticity, error, or omission, except to the extent arising from the sole gross negligence of BPA or BPWA. In no event shall BPA or BPWA be liable for consequential damages.
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