Did you know that you only have a few months left before you’re legally required to offer retirement options to your employees if you're a California SMB owner? In fact, you could possibly already be in violation of the new rules depending on the size of your business.

What are the rules? By 2022, all California business owners with five or more employees have to offer a retirement plan option or help employees get set up with the state’s official CalSavers IRA option. How do you know if you’re already in violation of the new rules?

If you own a small business with more than 100 employees, your deadline to meet the requirements was June 30th, 2020. If you have more than 50 employees, that deadline was  June 30th, 2021. For those with between five and 50 employees, you have until June 30th, 2022 to get everything in order.

Is it as easy as visiting the CalSavers website and registering your business? Not really. And, there are other retirement options for small business owners that are worth looking into as well.

About California’s Initiatives to Help Small Business Employees

Why did California need a state-run retirement program? Well, for starters, half of California private sector employees had no retirement assets. On top of that, the study from Berkely also noted that three-quarters of low-income workers and half of middle-income workers had no dedicated retirement assets. 

Those numbers were even more worrisome for minorities. According to the study, 7 out of 10 Latinos had no access to a workplace retirement plan.

Katie Selenski, Executive Director of CalSavers said, of the study and its findings, that “Every Californian deserves a chance to retire in dignity after a lifetime of work. This study underscores how far we have to go to get there.”

The study’s author Nari Rhee also commented, “These findings highlight not just the state’s retirement crisis, but the overall concentration of income and wealth in California, where one in three working Californians has a low wage job, alongside some of the wealthiest people in the nation.”

Read more about other state-mandated retirement plans here.

California SMB Owner Requirements

As mentioned above, the deadline to ensure that your business is offering retirement plan options for your employees depends on the number of employees you have. Currently, if you have between five and 50 employees, your deadline is June 30th, 2022. If you have more than 50 employees, you have already missed the deadline and should contact a retirement professional immediately to look at your options.

Now, what exactly are you required to enroll your employees in? Well, it’s important to note that you can offer any sort of retirement program or individual retirement account for your small business employees. It doesn’t have to be through CalSavers. 

What most business owners think, however, is that finding and implementing an entire retirement program for their small business is going to be costly (hint: it’s actually not!) and time-consuming (it doesn’t have to be!). So, instead of taking the time to set up a retirement plan offer for their business, owners can direct employees to the CalSavers program where they’re provided with an easy way to set up an IRA.

To set their employees up with CalSavers, business owners are required to sign up for the program, give employees the option to join or opt out, and then make sure their IRA contributions are deducted from their salary via a “simple payroll deduction.”

While that might sound easy enough, sending out the correct information to your employees and setting up the payroll deduction is actually quite time-consuming. We’ll walk you through other options below.

Are you a small business owner interested in retirement account options for yourself? Check out our guide to SEP IRAs.

The Cost of the CalSavers Program

Does it cost money to enroll your employees in the CalSavers retirement program? No. In fact, according to the CalSavers website, business owners will incur “no fees, no fiduciary responsibility, and minimal ongoing responsibilities.”

However, what’s the cost of not implementing any sort of retirement program as a small business owner in California? The penalties are quite high. Or, at least, they can be if you have more than a few employees.​​

Supposedly, the fine for not registering your employees is $250 for each employee not registered after 90 days of your corresponding deadline. That fine jumps to $500 for each employee not registered after 180 days.

Yikes. It’s definitely time to make sure you’re compliant. But, don’t worry too much about the costs. What if you decide to participate in the CalSavers program? You don’t have to fund any portion of the investment accounts for your employees. You simply have to set up the payroll deduction so that the correct amount gets deposited into their IRA.

Overall, small business owners are in support of the initiative, and you should be too. Small Business Majority polled business owners. They found that two-thirds of them support this as it would help their employees save for the future. That’s a big deal. We support it, too. However, we also want you to be aware of your options. The idea is that you, as the business owner, can make sure you’re optimizing your time and money.

What if You Don’t Want a State-Run Retirement Plan?

Don’t want the state running your retirement plan for yourself or your employees? We don’t blame you. The initiative itself is great for employees. However, it doesn’t make sense for them to have a state-run retirement plan either.

Opting to have a team of investment professionals manage your retirement accounts for you so that you can save money and focus on other areas of your business just makes sense, doesn’t it? If you’re interested in an easy, affordable alternative, get in touch.

Wealth Stack is now offering professionally-managed IRA plans for small business owners. You tell us about your business, we collect all the information we need, and then we invest in high-growth stocks. It’s a totally hands-off solution for busy business owners who want to save while investing in their employees and their company.

Send us a message for a complete quote for your small business.