With the next CalSavers deadline approaching in June, many California companies are working to become compliant. For some this means defaulting into the system, which may be easy but does require employer-side setup and maintenance. Others are weighing options and considering setting up a retirement option that would allow them to opt out of CalSavers while staying compliant.
Fortunately, you do have options when it comes to participating in CalSavers. These will keep your business compliant, provide your employees more options and flexibility and some even help companies save on taxes in the process.
CalSavers began as a pilot program in November of 2018, with progressive, tiered mandatory registration for companies based on the company size. There are penalties assessed on those that do not comply with the law.
Currently only two deadlines remain:
- Businesses with 50-plus employees – June 30, 2021
- Businesses with five-plus employees – June 30, 2022
Your company must register with CalSavers unless you have a qualified retirement program in place. Employees are allowed to opt in or out at any time, but if they do not take action to opt out they will be automatically enrolled. The default savings rate, including for workers that are automatically enrolled, is 5% of the employee’s gross pay. Every year, the default contribution rate automatically increases by 1% a year up to a max of 8%. Workers are allowed to change their contribution rate, or opt out, at any time.
While CalSavers does minimize the amount of administrative work for companies, they are still responsible for meeting certain facilitation requirements as described in California law. Companies are also responsible for admin tasks like processing payroll deferrals, remitting employee contributions, adding new employees and removing former employees.
You can learn about registering your company or begin the CalSavers registration process here.
CalSavers is mandatory only if your company does not have a qualifying retirement program in place. This gives companies an opportunity to choose a more beneficial option for their employees and for their business.
Qualified retirement plans include:
- 403(a) – Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan
- 408(k) – Simplified Employee Pension (SEP) plans
- 408(p) – Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan
- 401(a) – Qualified Plan (including profit-sharing plans and defined benefit plans)
- 401(k) plans (including multiple employer plans or pooled employer plans)
- Payroll deduction IRAs with automatic enrollment
These programs come with costs associated with starting and maintaining them but may allow your company to realize other benefits, including tax savings. These retirement tools may also offer employees more flexibility and provide the ability to save more effectively for the future.
CalSaver alternatives for construction companies
Construction companies that do prevailing wage work should carefully consider their options before defaulting into CalSavers. One of the best options to examine is setting up a 401(k) bona fide trust. This satisfies the requirements needed to opt out of CalSavers, but also provides additional benefits to both your workers and your company.
Prevailing wage fringe wages can be placed into the 401(k), providing workers benefit by having easy access to retirement planning tools. Construction companies that go this route can opt get to reduce their payroll taxes, workers’ comp and general liability costs.
Some companies have steered away from trusts as a tool for fringe management because their workers are used to receiving fringe benefits on their paycheck every week. These workers might be unhappy to see those dollars put into 401(k), which traditionally cannot be accessed regularly or easily. While this is true for most trusts, there is an alternative.
Our bona fide fringe trust is a traditional 401(k) that complies with the Employee Retirement Income Security Act (ERISA) and the IRS. This makes it a legal and safe way for companies to save on payroll taxes. However, unlike other 401(k) options, your workers actually can still access their fringe dollars every week. We can do this because we’re third-party administrator and a software company. This allows us to automate the administrative work, distribute and deliver funds.
Your employees have the option to leave their fringe in the trust or take it out each week. You get to provide them more retirement planning options while saving on payroll taxes, workers’ comp and general liability costs. This option can usually be set up in just a couple weeks, making it possible to beat the upcoming CalSavers deadline.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.