Understanding the California Retirement Savings Mandate for Small Business Owners

The state of California now requires most private sector businesses to offer an employee retirement program or enroll their employees in the state-run Roth IRA program. Whether you currently offer retirement benefits or are planning to enroll in the CalSavers program, it’s important to know your options and make the best choice for your business and your employees.

Unlike CalSavers, HUB Retirement Select is a fully bundled 401(k) plan that offers you the opportunity to stand out from your peers. You can choose to match employee contributions, and directly contribute to your employees’ retirement readiness. HUB takes the guesswork out of plan administration at a price point that works for you.

Here is what you need to know about the impact of this state mandate and what your alternatives may be.

What Is the California Required Retirement Plan?

Formally approved in the State Legislature in 2016 under the name California Secure Choice, the CalSavers law was designed to help millions of California workers save toward retirement. This is a state-sponsored program for those in the private sector, requiring employers with at least five employees to participate if the business does not already offer a retirement savings program to employees. It is estimated that around eight million workers in the state of CA have no access to a 401(k), pension or another qualified retirement program. The CalSavers program provides retirement savings assistance through a Roth IRA.

Enrollment Requirements

Several deadlines were established for all eligible businesses to comply with the mandate.

• 100 or more workers had to comply by June 30, 2020.
• 50 or more workers have until June 30, 2021.
• Employers with five or more workers must comply by June 30, 2022.
• Employers with less than five employees are exempt from the mandate.

Enrollment Process

Businesses can enroll via the CalSavers.com website. After enrollment, the business must send employee payroll contributions for each pay period to CalSavers. The liability for plan administration rests with the state and CalSavers rather than the business, and the CalSavers administration board selects the mutual funds for the plan. Employers cannot match plan contributions through CalSavers.

Is There an Alternative to the California Small Business Retirement Plan?

If you offer a retirement plan to your employees as part of your company benefits package, you will not have to enroll in CalSavers. Here are the advantages of a fully bundled 401(k) plan like HUB Retirement Select:

1. Assist with Employee Savings
   Under the state program, employers are not allowed to make contributions to an employee account. However, offering a 401(k) allows you to contribute or match investments, furthering the savings potential for your employees. Matching fund benefits also attract top talent and skill to your company, serving as a tool for both recruiting and retention.

2. Experience Tax Savings
   With the HUB Small Business Retirement plan, you can make tax-deductible contributions and potentially receive additional tax credits for the start-up costs.

3. Offer Retirement Savings for Everyone
   With the required savings plan structured as a Roth IRA, some business owners and other highly compensated employees may be precluded from participating in the program due to income restrictions. If business owners choose the state plan for most of their employees and offer a different plan for themselves and their executives, they could face a “fairness” challenge from employees. HUB Retirement Select offers a simple solution for your entire workforce.

4. Investment Management that Keeps You in the Loop
   HUB Retirement Select provides an ERISA 3(38) Investment Manager,* who takes responsibility for the selection and monitoring of plan investments. The philosophy for this investment lineup is aligned with industry best practices and backed by behavioral finance principles, which can help give your employees a clearer path to retirement readiness. We also provide regular updates on investment performance and quarterly market updates, to keep you informed.

Your Alternative to CalSavers

HUB Retirement Select benefits employers and employees alike. With fiduciary risk support, simplified plan administration and a better opportunity for you to help employees save.

Whether your small business is starting its first 401(k) plan or is looking to transfer a long-established retirement plan, HUB International offers flexible retirement plan options and plan administration to meet your organization’s needs.

Stay compliant but stay in control. Request a proposal today!

HUB Retirement Select advisory services offered through Global Retirement Partners, LLC, an SEC registered investment advisor and wholly owned entity of HUB International.