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Decision time (Part 2 of 3): CalSavers deadline looms for employers with >50 California employees

This article is Part 2 in my series intended to assist employers in the decision on whether to participate in the CalSavers program or offer their own employer-sponsored retirement savings plan.  Part 1 focused on the high-level concepts employers should consider when weighing CalSaver’s versus other retirement savings plan alternatives.  For Part 2, let’s focus on some of the characteristics that make your organization unique and how they may factor into your organization’s decision.

  • High seasonal or temporary employee population: for employers with a high seasonal or temporary employee population, CalSavers may be the best solution. While the employer is still responsible for tasks like adding new employees to the CalSavers website and withholding and remitting employee contributions, Cal savers is responsible for handling the day to day administration of employees accounts.  Therefore, CalSavers may offer the least administrative burden for the employer.  More importantly, it puts the onus on the state to deal with things like “lost” employees, small account balances, and stale-dated checks.

Alternatively, a 401(k) plan may also offer relief from the burden of administering benefits for seasonal or temporary employees.  In some instances, a 401(k) may actually offer more relief than CalSavers.  This is due to the fact that 401(k) plans allow employers to set eligibility requirements, including minimum service requirements, which must be met before a participant is covered under a plan.

  • Employers may require up to one year of service before an employee is eligible to participate. Adding a semiannual open enrollment means that an employee may be required to work for an employer as long as 18 consecutive months before they would ever be eligible to enter a 401(k) plan.
  • Employees may require 1000 hours of service in a plan year. If an employee does not complete 1000 hours of service during a 12-month period, then they are not eligible to enter the plan.  Note: the SECURE Act lowered the hours of service threshold to 500 hours for long-term part-time employees.
  • Depending upon the size of a seasonal or temporary employee population, it may be possible to exclude them from the plan entirely. In this case, these employees would never be covered under the plan regardless of how much they work or how long they work.  Note: the ability to exclude groups of employees is subject to IRS coverage testing rules.
  • High turnover: this situation is very similar to dealing with a high population of seasonal or temporary employees. Again CalSavers may be the best option for your organization.  Or, advanced 401(k) plan design could offer an even better solution for lowering the administrative burden and responsibility for accommodating these employees.
  • Demographics: if your organization has a large group of employees for whom English is their second language, then CalSavers may offer more resources to these employees. Most 401(k) and 403(b) products have very robust Spanish capabilities including websites, participant service representatives, and a library of educational materials.  However there is not much support for languages beyond English and Spanish.  CalSavers has gone so far as to conduct on-site enrollment meetings in languages other than English and Spanish.
  • Discrimination testing: the IRS requires 401(k) plans and some 403(b) plans to pass a battery of discrimination tests designed to prevent plans from discriminating against lower paid employees in favor of higher paid employees. If a retirement savings plan would never pass discrimination testing, and there is no budget to remedy testing failures, then CalSavers is likely the best option for your organization.  A qualified consultant can be helpful in reviewing your organization’s demographics to determine the likelihood of passing or failing.
  • HR department’s bandwidth: the COVID pandemic has forced HR departments into a constant state of flux and significantly increased demands of HR departments. But if you know there’s no capacity for implementing a plan now, then CalSavers is probably the best option for at least the short-term.  Other than registering via the CalSavers website <<hyperlink>> and uploading an employee census, there’s not a whole more for employers to do.  Keep in mind your organization can register with CalSavers now, then implement its own retirement savings plan at some point in the future.
  • Lifecycle: Is your organization a young, growing entity that needs to attract talent and motivate and reward employees? Then a plan that offers a real benefit to employees (SIMPLE IRA, 401(k), or 403(b)) probably makes the most sense.  If your organization has an older owner(s) who’s winding down the company, or maybe you’re a non-profit with a specific mission that is coming to an end, then CalSavers is likely the best options.  There’s not much sense in setting up a plan simply to shut it down in a few years.

Part 3 in this series will focus on the costs associated with the various alternative retirement savings plans.