rules
Print Friendly Version Print Friendly Version

California and Oregon State-Sponsored Retirement Plans

“I have several clients who are employers based in California and Oregon. Can you provide an update on the registration requirements for the CalSavers and the OregonSaves retirement savings programs? Are there any deadlines approaching?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from California is representative of a common inquiry related to state-sponsored retirement plans for private-sector workers.

As we reported in a prior Case of the Week:  State-sponsored retirement plans for private-sector workers, to date 12 states and one city have enacted laws that, generally, require certain employers without their own retirement plans to make the state-sponsored plan available to their employees. Each state has different rules so it is imperative to confer with state authorities and reference state websites for guidance. Note that some of the states’ plans have an employer registration requirement that is time sensitive. California and Oregon are examples of two such states.

California
CalSavers
 is a retirement savings program for private sector workers in California whose employers do not offer a retirement plan. Employers with five or more employees must participate in CalSavers if they do not already have a workplace retirement plan. Employers that do sponsor their own retirement plan must register their exemption from the state mandate. The following deadlines to register or claim an exemption are based on the size of the business.

Size of Business                 Deadline

Over 100 employees           September 30, 2020 (but see potential for year-end extension)[1]

Over 50 employees             June 30, 2021

5 or more employees          June 30, 2022

To register, visit www.CalSavers.com, call CalSavers Client Services at 855-650-6916 or email them at Clientservices@calsavers.com to certify an exemption. For businesses that missed the deadline and need to get caught up, please engage with the CalSavers support team immediately as they want to help. There is unofficial word that the deadline for registering as a California exempt employer has been extended to December 29, 2020. 

Oregon

Oregon has a similar employer registration requirement for its state-sponsored retirement program covering private sector workers− OregonSaves. Businesses with employees that do not offer a qualified retirement plan and are currently issuing payroll are required to implement the OregonSaves program. Most of the deadlines for registration/exemption have passed[2], but the state has indicated that its expectation at this time, given the impact of Covid-19, is for business owners to facilitate the program “as soon as you are reasonably able to do so.” Oregonian employers that sponsor a qualified retirement plan don’t have to participate in the program but must certify their exemption and renew it every three years.

Businesses can register or certify their exemption online at www.oregonsaves.com. Alternatively, they can contact the OregonSaves Client Service Team by phone at (844) 661-1256 or by email at clientservices@oregonsaves.com for assistance.

For information on state-sponsored retirement savings plans, please refer to the table below.

State/City Plan Name
1.    California California Secure Choice Retirement Savings Program
2.    Colorado Colorado Secure Savings Program
3.    Connecticut Connecticut Retirement Security Program
4.    Illinois Illinois Secure Choice Savings Program
5.    Maryland Maryland Small Business Retirement Savings Program
6.    Massachusetts Massachusetts Defined Contribution CORE Plan

 

7.    New Jersey New Jersey Small Business Retirement Marketplace

 

8.    New Mexico The New Mexico Work and Save Act

 

9.    New York New York State Secure Choice Savings Program
10. Oregon OregonSaves

 

11. Vermont Vermont Green Mountain Secure Retirement Plan

 

12. Washington Washington’s Small Business Retirement Marketplace

 

13. Seattle, WA Seattle Retirement Savings Plan

 

 

[1] Employers who missed this deadline should contact CalSavers and register as soon as possible to avoid penalties. There is unofficial word that the deadline for registering as a California exempt employer has been extended to December 29, 2020.

[2] Oregonian businesses with four or fewer employees have until January 15, 2021, to register or record their exemption.

© Copyright 2021 Retirement Learning Center, all rights reserved
Print Friendly Version Print Friendly Version

Coronavirus-Related Distributions and State Tax Withholding

“I know that CRDs are not subject to federal income tax withholding of 20 percent for qualified plan distributions, but what about state income tax withholding?  My client is a resident of Connecticut.”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from Connecticut is representative of a common inquiry related to Coronavirus-Related Distributions (CRDs).

Highlights of the Discussion

This is an important tax question. Your client should seek guidance from his or her tax advisor. What is presented here is for informational purposes only and cannot be relied upon as tax advice.

To be clear, a CRD is not subject to the federal mandatory 20 percent withholding requirement as required under Internal Revenue Code (IRC) § 3405(c)(1) if such an amount is paid from a qualified retirement plan. However, a CRD, whether paid from a qualified retirement plan or an IRA, remains subject to the federal voluntary 10 percent withholding rules of IRC 3405(b)—unless waived by the recipient (Notice 2020-50).

The application of state tax withholding on CRDs is dependent on each state’s tax laws. Here is a list of state government websites  that may be helpful for research.  For example, the state of Connecticut addresses the issue in Question 3 of a CRD Q&A posted on their state’s tax website.

“Are coronavirus-related distributions from a qualified retirement account, as allowed under the CARES Act, subject to Connecticut income tax withholding? Generally, yes. The payer is required to withhold 6.99% from the distribution unless the recipient submits a Form CT-W4P to the payer requesting that no or a lesser amount of Connecticut income tax be withheld.”

For state tax withholding rules it is important to consult a tax advisor who is well-versed in state tax issues.

Conclusion

For any tax issue, seek the guidance of a tax professional. The federal tax withholding rules for CRDs are explained in IRS Notice 2020-50. State tax withholding rules are state dependent, making the guidance of a state tax expert even more necessary.

© Copyright 2021 Retirement Learning Center, all rights reserved
Print Friendly Version Print Friendly Version

Qualified Charitable Distributions in 2020

“I have a client who consistently has made Qualified Charitable Distributions (QCDs) for the last several years and wants to make another for 2020.  Are they still available even though required minimum distributions (RMDs) are suspended for 2020?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare.  We bring Case of the Week to you to highlight the most relevant topics affecting your business.

A recent call with a financial advisor from South Dakota is representative of a common inquiry related to charitable giving.

Highlights of the Discussion

  • Yes, if your client is an “eligible IRA owner or beneficiary,” s/he can still make a QCD for 2020 if s/he does so by December 31, 2020. Although the gift will not have the added benefit of counting towards an RMD for the year (since none are due pursuant to the CARES Act), s/he’ll still be able to exclude the QCD from taxable income and have the satisfaction of supporting a good cause. Because the QCD reduces taxable income, other potential benefits may result, for example, a person may be able to avoid paying higher Medicare premiums because of the reduced income. Note that for those who make both QCDs and deductible IRA contributions in the same year, new rules as a result of the SECURE Act may limit the portion of a QCD that is excluded from income.
  • An eligible IRA owner or beneficiary for QCD purposes is a person who has actually attained age 70 ½ or older, and has assets in traditional IRAs, Roth IRAs, or “inactiveSEP IRAs or savings incentive match plans for employees (SIMPLE) IRAs. Inactive means there are no ongoing employer contributions to the SEP IRA or SIMPLE IRA. A SEP IRA or a SIMPLE IRA is treated as ongoing if the sponsoring employer makes an employer contribution for the plan year ending with or within the IRA owner’s taxable year in which the charitable contribution would be made (see IRS Notice 2007-7, Q&A 36).
  • A QCD is any otherwise taxable distribution (up to $100,000 per year) that an eligible person directly transfers to a “qualifying charitable organization.” QCDs were a temporary provision in the Pension Protection Act of 2006.  After years of provisional annual extensions, the Protecting Americans from Tax Hikes Act of 2015 reinstated and made permanent QCDs for 2015 and beyond.
  • Generally, qualifying charitable organizations include those described in §170(b)(1)(A) of the Internal Revenue Code (IRC) (e.g., churches, educational organizations, hospitals and medical facilities, foundations, etc.) other than supporting organizations described in IRC § 509(a)(3) or donor advised funds that are described in IRC § 4966(d)(2). The IRS has a handy online tool Tax Exempt Organization Search, which can help taxpayers identify organizations eligible to receive tax-deductible charitable contributions. Note that s/he would not be entitled to an additional itemized tax deduction for a charitable contribution when making a QCD.
  • Changes under the Coronavirus Aid, Relief, and Economic Security (CARES) Act made the decisions related to charitable giving more complicated in 2020. In addition to the above information on QCDs, the CARES Act created a new above-the-line deduction of $300 for charitable contributions, and allows for cash gifts to most public charities of up to 100 percent of adjusted gross income in 2020.  Because of the added complexity, seeking the advice of a tax professional regarding charitable giving would be the best course of action. IRS Publication 526, Charitable Contributions, provides good basic information on the topic.
  • Where an individual has made nondeductible contributions to his or her traditional IRAs, a special rule treats amounts distributed to charities as coming first from taxable funds, instead of proportionately from taxable and nontaxable funds, as would be the case with regular distributions.
  • Be aware there are special IRS Form 1040 reporting instructions that apply to QCDs.
  • Section IX of IRS Notice 2007-7 contains additional compliance details regarding QCDs. For example, QCDs are not subject to federal tax withholding because an IRA owner that requests such a distribution is deemed to have elected out of withholding under IRC § 3405(a)(2) (see IRS Notice 2007-7 , Q&A 40).

 Conclusion

Eligible IRA owners and beneficiaries, including those with inactive SEP or SIMPLE IRAs, should be aware of the benefits of directing QCDs to their favorite charitable organizations.  Law changes have enhanced other giving options, making professional tax advice essential when making a gifting decision.

© Copyright 2021 Retirement Learning Center, all rights reserved