According to the latest numbers from the U.S. Bureau of Labor Statistics, 45 percent of employers with fewer than 100 employees don’t offer a retirement plan.
California is one state looking to bridge that gap with a state-sponsored IRA savings plan called CalSavers. Small businesses operating in California with five or more employees have until June 30, 2022, to register for the CalSavers program or to establish a similar retirement plan that satisfies the state’s requirement.
CalSavers is an individual retirement account similar to programs started in Oregon (OregonSaves), Illinois (Secure Choice) and other states. Sponsored by the state, the CalSavers retirement savings plan is facilitated by employers and funded by employee investments via payroll deductions. The program:
- Uses Roth and traditional individual retirement accounts.
- Has automatic enrollment with a default savings rate starting at 5 percent of gross pay. (Employees can opt out of or change their rate at any time.)
- Allows employees to save through payroll contributions.
- Offers account holders a choice of investment options – including money-market, core bond, global equity and target-date funds.
- Does not allow employers to match employee contributions.
There is no fee to register for the program. However, business owners could face financial penalties for not having a retirement savings plan available for eligible employees to join. The proposed fines range from $250 per eligible employee if an employer remains non-compliant after 90 days of being served notice, escalating to $500 per eligible employee if noncompliance reaches 180 days or more after the notice.
Employers also must factor in some investment of time on their part once they register for the program, including setting up an account and managing it. Account setup includes such tasks as creating a payroll list to enroll employees, designating a payroll service provider – employers can use the one they have, if applicable – and transmitting payroll to a third-party administrator determined by the board of directors. Account management duties require employers to submit contributions and add new employees to the plan when necessary.
Business owners are not required to use the state-sponsored program. Registering for the CalSavers program is just one way to fulfill the requirement. Businesses also can establish their own employee retirement plans – qualified plans include 401(a), 401(k), 403(a), 403(b), 408(k), 408(p) and 457(b) plans.
As the movement toward mandatory state-sponsored retirement plans continues to gain traction, all laundromat owners who run attended operations should be considering the various options available to them. For Coin Laundry Association members, the CLA has established a national relationship with Paychex to help simplify the challenges of HR, payroll and benefits administration – and Paychex can serve as a key ally in helping to choose and then administer an employee retirement plan.
