The State of California is going down the path of mandating that all employers with an average of five or more part-time or full-time employees will be required to either have an ERISA retirement plan, such as a 401(k), or to auto enroll those employees in a payroll-deduction IRA run at the state level.
CalSavers (previously California’s Secure Choice) became a reality on September 29, 2016 when the Governor signed Senate Bill 1234. It is now anticipated the program will first launch a pilot program in late-2018 and officially open for statewide enrollment in 2019.
The CalSavers account would be governed by the same rules that govern all IRAs, including income limitations and annual contribution limits. On the contrary, a 401(k) plan would have no income limitations and contribution limits that are much higher than what is being offered through CalSavers. Additionally, employers would not be able to make matching contributions to the CalSavers plan as they would have the option to do in a 401(k) type plan.
According to the San Francisco Chronicle, when it comes to CalSavers one big question is fees. By law, participants have to bear all costs including administration and funding fees. For the first six years of the program, there is no cap in place on these fees. After those six years, the goal is to cap them at 1 percent. CalSavers is essentially borrowing money from the State’s General Fund in order to get the program up and going, and the participants must then repay the loan.
This is just a glimpse into the many differences that you should understand and consider before this program goes into full effect. With all of these changes, it makes us that much more pleased that we already have an industry specific 401(k) option in place at the CCBA.