The deadline is fast approaching. By June 2022, every employer in California of 5 employees or more will be mandated to offer a retirement plan. Businesses that are non-compliant will expose themselves to hefty fines and penalties of up to $500 per eligible employee.
CalSavers is a government run program to offer employees a retirement plan without requiring businesses to set up their own private 401(k). This standardized approach to retirement savings is certainly a step in the right direction but enrollees are only allowed to save up to $6,000 a year under 50 and up to $7,000 if over 50.
If you would like to learn more about CalSavers and how it works, we invite you to read our previous article.
There are many advantages for you and your employees to set up a private 401(k) over using a state run program. A 401(k) is almost always more beneficial for your employees, as the employer is allowed to match contributions every year. The maximum yearly contributions for employees under 50 is $19,500 and up to $26,000 for those over 50.
CalSavers also limits anyone making over $135,000 (single taxpayer) or $199,000 (married filing jointly) annually from participating in their retirement plan.
Business owners often assume that setting up a company-sponsored 401(k) would cost too much money. Companies may be eligible for tax credits and may receive up to $5,000 per year for three years to help fund the startup cost.
Perhaps the best case for setting up a 401(k), outside of keeping government run programs away from your business, is the simple fact that having a strong retirement plan makes your business highly attractive to your current employees and future hirees. This could be the reason why you land highly qualified candidates over a competitor and why your high achieving employees stay with you in the long run.
The fact is that most businesses are not a fan of CalSavers because they don’t like having their retirement funds tied to a state run program. They point to the viability of Social Security and CalPERS as reasons for concern. Your company can put its own plan in place to satisfy the new CalSavers mandate.
If you would like more information on how to set up your own private company plan in an economical way to benefit your business, your team members, and add special benefits to your executive team, contact Colony West today.