How Employers With 51 -100 Employees Can Meet Their CalSavers Deadline

The CalSavers Program applies to employers that do not maintain a retirement plan.  It automatically enrolls eligible employees in a state-managed system of Roth IRA accounts. June 30, 2021 is the deadline by which employers with 51 to 100 California employees must either establish that they are exempt from CalSavers (for instance, because they have their own plan) or enroll in the program.  Employers with more than 100 California employees were required to enroll by September 30, 2020

Although under legal attack for some time, on the grounds that the federal benefits law, ERISA, prohibited a state-run retirement program, the CalSavers program was just upheld by the Ninth Circuit Court of Appeals.  Money penalties apply to employers who don’t timely either establish their exempt status, or participate in the program.  Below is a how-to for employers in the 51+ group, who have approximately six weeks until their CalSavers deadline arrives:

  1. Already have a retirement plan (including a SEP or SIMPLE)?  Register or certify your exemption.  The link is here.  You will need your federal Employer Identification Number or Tax Identification Number and an access code that is provided on a notice you should have received from CalSavers via email or snail mail.  If you can’t find your notice, call (855) 650-6916. 
  2. Don’t have a retirement plan?  Consider establishing one in the time period left.  IRS Publication 560 contains information about setting up a SEP, SIMPLE, or a 401(k) plan for your small business.  Investment advisors to your business and even business CPAs can also help.  Don’t do it on your own, get expert advice as your choice of plan will have consequences!
  3. Don’t have a plan and don’t want one?  Register with CalSavers.  Again, you need your EIN, or TIN, and an access code.  If you don’t have an access code you can request one using this link. After you register, you will have 30 days to upload your employee roster and facilitate payroll contributions.  If you use an outside payroll provider, you will need to add them as your payroll representative.  More information on adding payroll representatives is provided once you register.
  4. Need more information about counting employees towards the 51 employee threshold?  Check out our prior blog post on the topic, which includes a discussion of use of staffing companies and the like, and also visit the CalSavers FAQ re eligibility.

The above information is a brief summary of legal developments that is provided for general guidance only and does not create an attorney-client relationship between the author and the reader. Readers are encouraged to seek individualized legal advice in regard to any particular factual situation. © 2021 Christine P. Roberts, all rights reserved.

Photo credit Levi Meir Clancy, Unsplash

State Auto-IRA Programs: What Employers Need to Know

California and four other states (Connecticut, Illinois, Maryland and Oregon) have passed legislation requiring employers that do not sponsor employee retirement plans to automatically withhold funds from employees’ pay, and forward them to IRAs maintained under state-run investment programs. Provided that these auto-IRA programs meet safe harbor requirements recently defined by the Department of Labor in final regulations, the programs will be exempt from ERISA and employers cannot be held liable for investment selection or outcome.  The DOL has also finalized regulations that would permit large cities and other political subdivisions to sponsor such programs where no statewide mandate exists; New York City has proposed its own such program, tentatively dubbed the New York City Nest Egg Plan.

In light of this growing trend, what do employers need to know about auto-IRA programs?   Some key points are listed below:

  1. Some Lead Time Exists. Even for state auto-IRA programs that become effective January 1, 2017 (e.g., in California and Oregon), actual implementation of employee contributions is pushed out to July 1, 2017 (in Oregon) and, in California, enrollment must wait until regulations governing the program are adopted. The California program, titled the California Secure Choice Retirement Savings Program, also phases in participation based on employer size. Employers with 100 or more employees must participate within 12 months after the program opens for enrollment, those with 50 or more within 24 months, and employers with fewer than 50 employees must participate within 36 months. These deadlines may be extended, but at present the earliest round of enrollment is anticipated to occur in 2019.
  2. Employer Involvement is Strictly Limited. The DOL safe harbor prohibits employer contributions to auto-IRAs and requires that employers fulfill only the following “ministerial” (clerical) tasks:
    • forwarding employee salary deferrals to the program
    • providing notice of the program to the employees and maintaining contribution records
    • providing information to the state as required, and
    • distributing state program information to employees.  Note that in California, the Employment Development Department will develop enrollment materials for employers to distribute, and in addition a state-selected third party administrator will collect and invest contributions, effectively limiting the employer role to forwarding salary deferrals.
  3. Employers Always Have the Option of Maintaining their Own Plan. Generally the state auto-IRA programs established to date exempt employers that maintain or establish any retirement plan (401(k), pension, SEP, or SIMPLE), even plans with no auto-enrollment feature or employer match used to encourage employee salary deferrals. Therefore employers need not be significantly out of pocket (other than for administrative fees) to avoid a state auto-IRA mandate. Employers should bear in mind that an employer-sponsored retirement program, even if only a SEP or SIMPLE IRA, helps to attract and retain valued staff, and should consider establishing their own plan in advance of auto-IRA program effective dates for that reason.
  4. Penalties May Apply. California’s auto-IRA program imposes a financial penalty on employers that fail to participate.   The penalty is equal to $250 per eligible employee if employer failure to comply lasts 90 or more days after receipt of a compliance notice; this increases to $500 per employee if noncompliance extends 180 or more days after notification. The Illinois auto-IRA program imposes a similar penalty.
  5. Voluntary Participation in Auto-IRA Program May Create an ERISA Plan. One of the requirements of the DOL safe harbor is that employer participation in auto-IRA programs (referred to as “State payroll deduction savings programs” be compulsory under state law. If participation is voluntary, an employer will be deemed to have established an ERISA plan. In theory, this rule could be triggered when an employer that was mandated to participate later drops below the number of employees needed to trigger the applicable state mandate (for instance, a California employer that drops below 5 employees), but continues to participate. The DOL leaves it to the states to determine whether participation remains compulsory for employers despite reductions in the number of employees.   The DOL also notes that, under an earlier safe harbor regulation from 1975, an employer that is not subject to state mandated auto-IRA programs can forward employees’ salary deferrals to IRAs on their behalf without triggering ERISA, provided that the employee salary deferrals are voluntary and not automatic.   The DOL final regulations can be read to suggest that a payroll-to-IRA forwarding arrangement that is voluntary and that meets the other requirements of the 1975 safe harbor will constitute a pre-existing workplace savings arrangement for purposes of exempting an employer from a state-mandated auto-IRA program.
  6. The Trump Administration Will Likely Support Auto-IRA Programs. Early and necessarily tentative conclusions are that the Trump Administration will continue to support the DOL’s safe harbor regulation exempting auto-IRA programs from ERISA, as well as other state-based efforts to address the significant savings gap now known to confront much of the country’s workforce.   One unknown variable is the degree to which the Trump Administration will be influenced by opposition to the programs mounted by the financial industry. Until the direction of the Trump Administration becomes clearer, employers that do not currently maintain a retirement plan should track auto-IRA legislation in their state or city and otherwise prepare to comply with a state or more local program in the near future, ideally by adopting their own retirement plan for employees.