Time to Start Saving

“I’m trying to decide whether it’s best to add a 401(k) plan to my benefits or use CalSavers. Is there a benefit to either?”

Your HR Survival Tip

CalSavers is the retirement plan California has created that allows employers to offer a way for employees to save toward retirement. Actually, the state is trying to force people to save but this is one of those occasions where their plan is a good idea overall. There are benefits from both a 401(k) plan and the new CalSavers plan so which you choose will come down to which benefits you prefer.

If your company does not have a 401(k) or similar retirement plan in place, you will be required to register for CalSavers. The deadlines for registering are staggered: 9/30/2020 for companies with 100+ employees; 6/30/2021 for those with 50+ employees; and 6/30/2022 for companies with 5+ employees. If you have a retirement plan in place, you do not need to register but you might try just to confirm the state knows you have a plan.

CalSavers — VS —  401(k)-Type Plans

• It is free to register your company and participate. VS There is an annual administrative fee.
• There are no costs involved when employees participate. VS There is a per participant cost.
• Employee participation is automatic unless the employee opts out. VS Employees must meet eligibility requirements before being allowed to participate.
• Employees may opt out but, if they participate, the contribution is 5% to start. VS Participating employees can choose to contribute any percentage or dollar amount, within limits.
• You upload employees when you first start the program and then add new hires within 30 days so they can participate. VS You may set an eligibility period, such as one year, before employees are eligible to participate.
• CalSavers contacts each employee to discuss the program with them. VS Usually the plan has a financial planner who can discuss options with employees.
• You are not allowed to add money to an employee’s account or offer a company match. VS You can add bonuses or a match to your employee’s account.
• Employees are responsible for ensuring they do not contribute more than legally allowed each year (or it will be returned and taxed). VS Your TPA (third party administrator) helps monitor the account balances and make needed adjustments.
• The state chooses the terms of the IRAs and which investments are offered. VS You have fiduciary responsibility for the funds/stocks available in the plan but you can offer a wide selection.
• Employees maintain control of their account when they terminate so they can choose to keep it or add their next employer. VS Employees may keep their money in your plan upon termination or choose to roll it out to another plan or IRA.

Any retirement plan is a benefit to your employees. As the employer, you just need to determine whether CalSavers or an independent plan best serves your purposes. Often the high earners want a plan but they also really like a company match, which is only possible with an independent plan. However, if you don’t see spending the money on an independent plan as a good use of your benefit dollars, CalSavers allows you to offer a plan at no cost to you.