On August 31, California lawmakers in Sacramento passed a bill that will require certain private-sector employers to make automatic payroll deposits into employee retirement savings accounts. Although the California Secure Choice Retirement Program (S.B. 1234) has been taken step by step, upon full implementation, the program will apply to any employer with five or more employees that lacks an alternative retirement plan. Certain to be signed into law by Governor Jerry Brown, Total HR Management realizes the new requirements will present both HR and payroll challenges. As a professional employer organization (PEO) offering a variety of payroll services, Total HR plans to help our client companies effectively handle these new challenges, integrating them into their payroll model.
Employee Retirement Plans
If a company does not offer a pension plan, 401(k) account or other retirement savings option, the new bill is designed to create savings accounts for that company’s workers. Although overseen by the Secure Choice Retirement Savings Investment Board, the board is planning to select an outside vendor to administer the accounts. In a statement prior to the bill passing, Senate President pro Tempore Kevin de León clearly pointed out that the new state program, “will offer a hand – not a handout – to 6.8 million working Californians whose employers do not offer a retirement plan.”
Once Governor Brown signs the bill, implementation of the new regulations is expected to begin as early as January 1, 2017. It is important to note that implementation will take some time given the nature of state bureaucracy. Given the extended time frame, Total HR Management will focus our fall efforts into helping client companies make the transition as smoothly as possible. It’s also important to add that the enrollment period depends on the size of the company. Many smaller companies will have two to three years to make the transition, opening the door to calm waters before the actual wave of the new regulations hits.
California Legislates Retirement Savings
Within the first year of the program opening for enrollment, employers with more than 100 employees and no retirement savings plan must automatically enroll any employees that do not opt out. Employers with 50-99 employees will have two years to enroll workers, and employers with 5-49 employees will have 3 years. Total HR believes this extended time frame will make for a much smoother transition.
The benefit of such retirement plans is that employees are 15 times more likely to save for retirement if they have a workplace savings program. Despite being able to open a retirement account on their own, the vast majority of employees choose to ignore this option. Low wage workers, theoretically the employees most in need of such accounts, are least likely to have them. “Right now there are about 39 million employees nationwide who don’t have access to retirement savings through their employers,” explained Brian Benko, an attorney with the McDermott Will & Emery law firm in Washington, D.C.
State-Sponsored Retirement Plans
In California, about 7.5 million workers do not have access to a company-sponsored retirement plan. The goal of instituting a state-sponsored plan is to allow these employees to begin saving for their futures. Two-thirds of those 7.5 million employees work for employers with 100 employees or less. The new state-run plan will invest in Treasury securities and other conservative investment options during its first three years. Other investment alternatives will be added at a later time.
Employees who fail to choose a specific contribution rate will automatically have 3% of their pay deferred into the plan, similar to the default contribution rate for automatic enrollment in a 401(k) plan. The contribution limits for the Secure Choice Plan are set at the same level as for traditional and Roth IRAs, which is $5,500 for savers under age 50 and $6,500 for those age 50 and above.
Total HR Management Can Help
Although time will tell how well the plan works once implemented, Total HR Management will continue to support our clients companies regardless with the goal of avoiding unnecessary bureaucracy. We will help your company access the best savings available while staying in line with the new government regulations. As a professional employer organization with a payroll services option, Total HR Management will support your company. To learn more about how we can help, please call (800) 975-5128 today to set-up an HR audit.
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