Employers in California should be ready for a big change in the retirement law to take effect over the next three years. This change comes in the form of a new California program called CalSavers (formerly known as Secure Choice). CalSavers is a state-sponsored individual retirement account (“IRA”) program similar to existing programs in Oregon and Illinois.
CalSavers applies to any employer in California with at least five employees. The law requires California employers to either offer their employees a “qualified” retirement plan or facilitate their employees’ enrollment in a state-sponsored payroll-deduction plan. Qualified plans are those governed by the Employee Retirement Income Security Act (“ERISA”), the federal law designed to protect private-sector pensions. These plans can range from 401(k) plans to automatic payroll-deduction IRAs.
Employers who do not provide a qualified plan for their employees must facilitate their employees’ enrollment in the state-sponsored plan. This plan differs from a traditional 401(k) based on the level of employer involvement it allows. For example, employers do not have the option of matching an employee’s contributions under the state-sponsored plan. An employee’s enrollment in the state-sponsored plan will come at no cost to employers beyond the time invested in facilitating enrollment. An employer must also enable employees to make a direct payroll contribution to their CalSavers account and transmit the contribution to a third party, known as an administrator, or designate their payroll services provider to facilitate on their behalf. Beyond that, the employer’s responsibilities under the state-sponsored plan consist primarily of providing information about the program to their employees.
Notably, CalSavers also has a number of safeguards in place to limit employers’ liabilities and responsibilities. For example, employers will not have any liability for an employee’s decision to participate in or opt-out of the CalSavers program. Furthermore, employers will not be fiduciaries of the program or have any liability for the investment decisions of participating employees. Finally, employers will not be responsible for the administration, investment performance, or payment of benefits earned by participating employees.
California employers should prepare to comply with CalSavers. Employers without a qualified retirement plan who do not facilitate the payroll-deduction could be fined as much as $500 per eligible employee. CalSavers will be open to all eligible employers starting July 1, 2019. After that, the employer mandate to comply will take effect on a rolling basis based on the size of the employer.
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