For decades, there has been a growing crisis in the United States, which despite efforts from congress, has roughly half of Americans saying that they have not properly saved enough to maintain their standard of living upon retirement. With uncertainty surrounding the future of programs like Social Security, states have begun to take this matter into their own hands. Employer-sponsored retirement plans come with retirement plan requirements and they enable employees to save money for retirement using plans like 401(k)s and SIMPLE IRAs. These savings vehicles offered by many employers generally allow workers to save on a tax-advantaged basis.
Under an employee retirement plan, employees choose a percentage of their paycheck to invest in a retirement plan each pay period. The funds are directly taken from each paycheck without the need for intervention from employees.
A growing number of states have released new programs that require businesses that meet certain criteria to provide employees with access to a retirement plan. California and Colorado, in particular, have experienced some of the biggest changes to employer-sponsored retirement planning.
CalSavers Program in California
CalSaver’s is a new retirement savings program in California that was established to give employees an easy way to save for retirement. The program applies to private-sector workers whose employers do not currently offer any type of group retirement plan.
California employers are required by state law to implement CalSavers if they do not offer an employer-sponsored retirement plan and have five or more employees. All eligible employers can register at any time prior to their registration deadline:
- More than 100 employees: Deadline passed 9/30/2020
- More than 50 employees: Deadline 6/30/2021
- More than 5 employees: Deadline 6/30/2022
Businesses that are not offering retirement plans by the deadline are required to register for the program, set up and manage their accounts and manage employee contribution submissions with each payroll. The state must also be notified of each new hire within 30 days.
CalSavers is mandatory to all businesses that meet the criteria and failure to comply can lead to a penalty for each eligible employee. Any employee in California who does not currently have access to an employer-sponsored retirement plan and is employed by a company with at least five employees is eligible to participate in the program.
CalSavers is a Roth IRA, a retirement account that entails post tax contributions and enables account holders to withdraw funds tax-free. As a Roth IRA, employees can only enroll in the plan if they meet certain income thresholds.
For employees filing as single, head of household or married filing separately, the modified adjusted gross income limit is $139,000. For employees filing married filing jointly or as a qualifying widow or widower, the limit is up to $206,000.
Secure Savings Program in Colorado
According to the U.S. Bureau of Labor Statistics, nearly 40 million employees in the private sector do not have access to a retirement plan. In Colorado, the Secure Savings Program was introduced to provide employees access to a retirement plan. Under this program, any business with more than five employees in Colorado must offer a way for employees to save for retirement.
The law was passed on July 21, 2020, and mandates businesses that meet the criteria to offer an individual retirement account (IRA) that is funded through automatic payroll deductions. For employers, the rollout of the program is staggered and employers that already offer a 401(k) plan or other qualified retirement plan are exempt from having to enroll.
Employers can enjoy several tax benefits when they offer a retirement plan to employees. Colorado plans to establish grants to help minimize the cost of offering retirement plans and to encourage more businesses that may not meet the criteria. Employers who do not comply with the program may be fined for each eligible employee per year.
Any employee age 18 or older who has been employed in Colorado for at least 180 days is affected by the Secure Savings Program. Employees are permitted to withdraw funds from their account without penalty for a minimum of the initial two years of enrollment within the program.
Similar to other Roth IRAs, the amount that an employee can contribute is based on their age, marital status and income. In 2021, the maximum contribution amount is $6,000 for employees under age 50 and $7,000 for employees age 50 and above.
Employers unfamiliar with Colorado’s Secure Savings Program must ensure that their payroll system is ready to accommodate these changes and that all requirements are put in place to avoid costly fines.
Additional States with Group Retirement Plan Requirements
OregonSaves – Oregon was the first state to implement any mandates for employers to offer group retirement plans, and currently requires all businesses with 5 or more employees to offer a group retirement plan.
Illinois Secure Choice – Illinois requires employers with over 25 employees and at least 2 years in operation to provide access to Illinois Secure Choice or a private retirement plan.
Speak With New City For More Info On Retirement Plan Requirements
Although the new retirement plan requirements established in California, Oregon and Colorado have become widely-known, this trend also impacts other areas of the United States. Other states like Texas, New York, New Jersey, Nevada, Washington, Florida, and Arizona are also developing or have developed retirement plan programs that impact small employers.
It should be noted that managing system integrations, administering contributions, and the additional reporting requirements of the state run programs can come with additional employer liability. The state run programs also have investment and eligibility limitations.
Retirement plans can be beneficial to both employers and employees. Employers need to become familiar with the retirement plan requirements in their state to avoid the penalties associated with noncompliance, and should become educated on the various options available both via the state and private administrators. For more information or to speak with an experienced employee benefits firm, reach out to a benefits consultant at New City Insurance.