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State-sponsored retirement plans for private-sector workers

“Which states, if any, have enacted or proposed legislation that would enable them to offer retirement savings programs to private-sector workers?”

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 Illinois is representative of a common inquiry related to states and retirement plans.

Highlights of the Discussion

As of August 20, 2019, 10 states have succeeded in enacting laws creating retirement savings programs for private-sector workers. [1]

State Plan Name Type of Plan
1.     California California Secure Choice Retirement Savings Program Automatic Roth IRA
2.     Connecticut Connecticut Retirement Security Program Automatic Traditional or Roth IRA
3.     Illinois Illinois Secure Choice Savings Program Automatic Roth IRA
4.     Maryland Maryland Small Business Retirement Savings Program Automatic Traditional IRA
5.     Massachusetts Massachusetts Defined Contribution CORE Plan

 

A multiple employer plan that is a pre-tax and post-tax 401(k) savings plan developed for employees of eligible small nonprofit organizations.
6.     New Jersey New Jersey Small Business Retirement Marketplace

 

A marketplace for diverse retirement plans, including, at least, life insurance plans, Savings Incentive Match Plans for Employees (SIMPLE) IRAs and payroll-deduction IRAs.
7.     New York New York State Secure Choice Savings Program Payroll Deduction Roth IRA
8.     Oregon OregonSaves

 

Automatic Roth IRA
9.     Vermont Vermont Green Mountain Secure Retirement Plan

 

A multiple employer plan that is a tax-deferred, pre-tax 401(k) savings plan with optional future employer contributions
10.  Washington Washington’s Small Business Retirement Marketplace

 

A marketplace where qualified financial services firms offer low-cost retirement savings plans to businesses and individuals

Another 24 states have introduced legislation on this topic that is still under consideration: Arizona, Colorado, Georgia, Iowa, Indiana, Kentucky, Louisiana, Maine, Michigan, Minnesota, New Hampshire, Nebraska, New York, North Carolina, North Dakota, Ohio, Pennsylvania, Rhode Island, South Carolina, Utah, Vermont, Virginia, West Virginia and Wisconsin.

Conclusion

Considering that federal legislation to address the retirement security of American works has progressed at a snail’s pace, some state legislatures have taken on the task and enacted laws that create state-sponsored retirement savings plans for private-sector workers. Many other states are considering similar action.

[1] AARP Public Policy Institute, State Retirement Savings Resource Center, August 2019

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CalSavers Sign Up Begins

“The CalSavers program has been in the news. What is it?”

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 types of retirement plans.

Highlights of the Discussion

The CalSavers Retirement Savings Program (CalSavers) is a mandatory retirement savings program run by the state of California for private sector workers of California. California state law requires employers to either offer their own retirement plan[1] or register to facilitate CalSavers. On threat of penalty,[2] the employer is required to register with the state for CalSavers if the business

  • Has at least five California-based employees, at least one of whom is age 18, and
  • Does not sponsor a qualified retirement plan.

July 1, 2019, marked the opening for registration. There are staggered compliance deadlines depending on the size of employer. For eligible employers with

  • More than 100 employees, the deadline to participate is June 30, 2020;
  • More than 50 employees, the deadline to participate is June 30, 2021; and
  • With five or more employees, the deadline to participate is June 30, 2022.

Employer Involvement

An eligible employer is responsible for registering for the program, providing basic employee roster information to the state for eligible employees (i.e., name, date of birth, Social Security Number or ITIN, and contact information), and facilitating by payroll deduction the appropriate contributions each pay cycle.

Employee Involvement

Covered employees are automatically enrolled in CalSavers, and the state will contact employees directly to make them aware of the program and inform them of their ability to opt-out or customize their contributions. The default contribution is five percent of an employee’s gross salary, with an automatic one percent increase each year up to a maximum of eight percent. Currently, the CalSavers Program uses after-tax Roth IRAs, but is working on adding a Traditional IRA choice in late 2019 or early 2020. For 2019, the contribution limit is $6,000 for those under age 50 and $7,000 for those ages 50 and over. Note that this limit applies to all of an individual’s IRAs in aggregate—including a CalSavers account. Standard Roth IRA distribution rules apply. Unless an employee selects another investment option, the first $1,000 in contributions will be invested in the CalSavers Money Market Fund and subsequent contributions will be invested in a target retirement date fund based on the individual’s age. Employees can decide at any time whether to keep their investments in these funds or choose from a menu of other investment options. That’s just the top of the waves. The CalSavers website contains a wealth of information for employers and savers.

Conclusion

Registration is now officially open for the California-run CalSavers Retirement Savings Program—a automatic Roth IRA program for California workers who do not have access to a workplace retirement plan.

[1] Qualified retirement plans include pension plans; 401(k) plans; 403(a) plans; 403(b) plans; Simplified Employee Pension (SEP) plans; Savings Incentive Match Plan for Employees (SIMPLE) plans; or Payroll deduction IRAs with automatic enrollment.

[2] A penalty of $250 per eligible employee applies if noncompliance extends 90 days or more after notice, and if found to be in noncompliance 180 days or more after notice, an additional penalty of $500 per eligible employee will apply.

© Copyright 2019 Retirement Learning Center, all rights reserved