California’s CalSavers Requirement Looms

CalSavings vs. Your Own Nestegg


RINA Alert --  January 8, 2021 | Volume 19, Issue 2 

Should you establish your own retirement program instead?

Are you an employer with more than five employees and don’t yet provide a qualified retirement plan to your employees?  If so, California’s new CalSavers program will require you to register and provide your employees access to its retirement savings plan.          
The CalSavers program has no upfront fee for the employer, but your business will still have the start up costs of telling your employees about the program and educating them on how to sign up. In addition, you will have the ongoing burden of calculating the correct payroll deductions and making sure the amounts get to CalSavers. If you use a payroll service, your fees may increase because of the extra effort. Overall, the administrative burden of supporting CalSavers should not be underestimated.
On the other hand, this may be the right moment for your business to establish a qualified retirement plan. The SECURE Act of 2020 allows businesses to establish and fund a plan of their choice well into the next calendar year, prior to filing the tax return (including extensions).  The Act also retains a tax credit of $500 per eligible employee, up to $5,000 per year, to offset qualified plan startup costs (for three years, $15,000 total).  Finally, the Act adds an additional $500 credit for adding an automatic enrolment feature on new or existing plans (for up to three years, $1,500 total).  
Since the administrative cost and burden of establishing a plan is now essentially mandated by the CalSavers program, this is the time to act.  The SECURE Act offers credits for qualified start up costs while the start-up costs for CalSavers receive no Federal credit. Establishing a qualified plan will provide an exemption to CalSavers as well as provide the business flexibility to pick a plan that is right for the business and its employees.
If an eligible plan is ultimately selected, the federal credits that were retained and established under the SECURE Act entitle an employer to up $16,500 of credits available over three years.  These credits can help offset the cost of establishing the plan while still providing tax planning opportunities for the business and deferred retirement benefits to attract and retain employees. 

CalSavers Key Facts

Employers with more than 5 employees who do not provide access to a qualified retirement plan must register.
Employers with more the 100 employees – Register now
Employers with more than 50 employees – June 30, 2021
Employers with more than 5 employees – June 30, 2022
Penalties for non-compliance – up to $500 per eligible employee.
You can register for the CalSavers program or certify an exemption for your business here.

Secure Act of 2020

The act extends the deadline to establish a qualified plan to the business’s tax filing deadline, including extensions. For a partnership, this would be an extended deadline of September 15th, 2021 for a 2020 plan. 
Examples of qualified plans
403(a) - Qualified Annuity Plan or **403(b) Tax-Sheltered Annuity Plan
408(k) - Simplified Employee Pension (SEP) plans
408(p) - Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan
401(a) – Qualified Plan (including profit-sharing plans and defined benefit plans)
401(k) plans (including multiple employer plans or pooled employer plans)
**Payroll deduction IRAs with automatic enrollment
**May not be eligible for SECURE Act Credits
Qualified retirement plans provide a great opportunity to reduce the tax liability of the business and its owners, while providing employees with tax deferred retirement income that can help attract and retain talent.
401(k), SEP and SIMPLE IRA plans established by small businesses are eligible for various tax credits
-Qualified Startup Costs – up to $500 per eligible employee for three years for ‘qualified costs costs to establish a plan’.
                -Automatic enrollment - $500 per year for three years.
                -A total of $16,500 of federal tax credits over three years!

What to do next?

As always, each situation is unique and RINA is here to help you navigate these new rules and requirements.  RINA Wealth Management Services has assisted numerous businesses analyze and establish qualified plans. Now is it a great time to have a conversation. 
Your RINA accountant will be happy to introduce you to advisors at RINA Wealth Management Services and work together with them to help you.
Contact us today to begin this process.

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