retirementplanning

BY DAVID TEYKAERTS AND LEONARD C . WRIGHT , CPA / PFS , CGMA

Fine Abatement Opportunity

The implementation of CalSavers is in phases based on the number of employees in the business . Initial compliance has been significant at 93 percent . Initial compliance means the employer has either : 1 . Disclosed that there is an available retirement plan in their business and has been properly exempted .

2 . Registered on the CalSavers website , the first step toward full facilitation of the program . The FTB mails penalty notices to the 7 percent of employers who have yet to comply . The fine assessed can be up to $ 750 per employee for not registering with CalSavers . While a financial penalty for failure to comply is critical to the program ’ s long-term success , CalSavers ’ goal is not to collect revenue through penalties ; rather , it wants businesses running the program and for their employees to start saving money .

If a business receives an FTB penalty notice , they should take these steps in order before paying the penalty : 1 . Fully comply with the mandated action . That means facilitating the payroll deductions for all eligible employees who do not opt out of the program .

2 . Contact CalSavers and confirm your compliance .

3 . Discuss penalty payment options with CalSavers .

Compliance and Final Phase of Implementation 1 . CalSavers is enforcing the mandate

CalSavers Quick Facts

505,283 : Funded saver accounts $ 1B : Total savers contributions 5.21 %: Average contribution rate $ 204 : Average monthly saver contribution

More info can be found at calsavers . com .

– Facts as of May 1 , 2024

for all employers with five or more employees . Since November , efforts have reduced the pool of penalizable employers from 30,000 to about 15,000 .

2 . 2022 legislation expanded the mandate to include businesses with one to five employees . CalSavers estimates there are at least 400,000 such businesses in California . Their compliance deadline is the end of 2025 .

CalSavers Background The adoption of CalSavers by business owners or the business owner adoption of retirement plans fulfills a long-held desire of CalCPA ’ s financial literacy efforts that Americans achieve “ on track for retirement ” status . Out of an estimated 6.1 million business owners with employees , there are about 625,000 401 ( k ) plans . Simplified Employee Pension Plans and SIMPLE IRA plans nudge up that number a bit . But it is safe to say that most business owners with employees do not have a retirement plan .

Enter CalSavers , which features : 1 . Automatic enrollment at 5 percent . 2 . Automatic escalation at 1 percent per year , capping out at 8 percent . 3 . Default account as a Roth IRA . 4 . Option to re-enroll after opting out 5 . Secure 2.0 created a streamlined potential for deposit of the Savers Credit directly into participant accounts in 2027 . It ’ s important to note that participants can always lower or raise the savings amount . Employees can also opt-out .

Over the last year , the assets under management have increased from $ 595 million to $ 858 million .

Part of CalSavers ’ success is in impacting the lives in communities that have historically had less access to an employer plan : women , low income and minority communities across California . The public-private partnership substantially increases the potential for the financial well-being of Californians across a broad spectrum of the underprivileged .

CalSavers supports the private sector financial industry serving employers with the means to implement their plans , while also providing a governmentadministered option to employers better served by a no-cost , non-fiduciary program that ’ s easy to implement .

Research shows that people are exponentially more likely to be on track for retirement savings if they save through an automatic paycheck deduction .

One data point of success is with labor forces that evolve from one employer to another : Some 15 percent of accounts have contributions from different employers . We believe the current solution of not requiring cashing out of retirement plan assets or shifting assets to another company retirement plan or an IRA creates “ sticky ” retirement account success ; the assets remain in the retirement account over time .

David Teykaerts is executive director of CalSavers . You can reach him at david . teykaerts @ treasurer . ca . gov . Leonard C . Wright , CPA / PFS , CGMA is former chair of the CalCPA PFP Committee .

20 CALIFORNIA CPA JULY 2024 www . calcpa . org