Retirement Plan Mandates for Businesses with 5 to 100+ Employees

Be sure you know EVERYTHING about having a plan

California state law currently requires all employers with 50 or more employees to have a retirement plan in place and soon, businesses with 5 or more employees must also establish plans. Surprisingly, many employers are still not aware of this requirement. Unfortunately, others who did establish plans are finding that they didn’t understand all the requirements and regulations.

June 2020 was the deadline for retirement plans to be established for employers with 100 or more employees.

For businesses with 50 or more employees, your plan should have been in place in June 2021.

By June 30, 2022, employers with 5 or more employers will also need to have a plan.

Employers have two options when it comes to establishing a plan – California’s government-run retirement savings program, CalSavers, or employers may establish their own 401(k) plan.

Retirement plans are a great way to attract and retain your talent, educate your team about their retirement needs and help your employees plan and save for the future. One advantage to setting up your own plan versus using CalSavers is the ability to customize the plan to fit the needs of your workforce and add multiple options not offered through CalSavers. Also, your employees may contribute much more to a company 40l(k) plan than through CalSavers.

Here are some important issues for you to consider when choosing which option is best for you:

  • 401(k) plans require annual audits. These audits can be expensive and, the fees may be higher than the entire plan value, depending upon the number of employees who opt to participate in the plan.
  • Noncompliance with aspects of the plan’s requirements can result in the Department of Labor taking action against your business. It is important to understand upfront all aspects of what is required to establish and maintain a proper plan.
  • If an employer chooses to have its own program, you must still opt out of CalSavers (see the CalSavers website for more information).
  • It can take up to a month to set up an employee plan. If you need to meet the June 2022 deadline – or are passed your deadline, depending upon how many employees you have – you shouldn’t wait too long to begin the process.

Additional questions that you should consider include:

  • Would you prefer to have your plan receive professional investment advice with monitoring?
  • How many investment options would you like to offer your employees?
  • Would your employees benefit from education regarding their retirement?
  • Would you, as an owner of your business, like to evaluate tax benefits associated with a company retirement plan?

The PBO Advisory Group team will walk you through the options and benefits, and help you make the best choice for you and your employees. We can also work with you to establish your plan and assure you are in complete compliance as you move forward.

Earlier this year, we hosted a webinar featuring our friends at Cornerstone Wealth Advisors. The Cornerstone team did an excellent job comparing the CalSavers and employer-based 401(k) options. We also did a blog post that detailed several issues. We encourage you to listen to the webinar, read the blog post and/or contact us.

For more information, please contact Francesca San Diego.

Francesca San Diego
Consulting CFO & Member
(858) 935-48476