California Secure Choice Retirement Savings Trust Act (SB 1234)
The wheels have started turning for the first state-run retirement program. The California Secure Choice Retirement Savings Trust Act (SB 1234) was signed by Governor Brown on September 28, 2012. It’s not clear that this program will ever be fully implemented, but I think that it is important for our readers to understand what this legislation does.
BUSINESSES WITH 5 OR MORE EMPLOYEES that do not maintain their own retirement plan will be required to withhold 3% of each employee’s compensation and remit to the California Secure Choice Retirement Trust.
EMPLOYEES MAY OPT OUT of the plan, and they may be able to choose an amount other than 3% of pay. The Employment Development Department is tasked with developing a set of forms for employers to provide to employees if they are covered by the plan. Certain types of employees are exempted from this Act, such as those subject to collective bargaining with a Taft Hartley plan, those covered by the Railway Labor Act, and employees of governments and governmental instrumentalities.
OPEN ENROLLMENT for employees to enter the program or make changes to his or her contribution is required only once every two (2) years so changes may be limited to those open enrollment periods.
A PENALTY OF $500 PER EMPLOYEE will be imposed on any employer who is subject to the Act but who does not offer enrollment to their employees.
FUNDS WILL BE INVESTED in a trust to be determined by a seven-member Board that will be set up to structure the program. The trust may be through a private entity, or may be through Cal-PERS. The funds must be in a segregated account, and a report on the status of the fund must be published every 30 days.
A GUARANTEED RETURN is implied by the legislation. It allows for a Gain and Loss Reserve Account to be considered for years in which the investment return fails to meet the stated interest rate for the trust.
FEDERAL APPROVAL must be granted before this legislation can get underway. The Board must submit its proposal for the program to the Internal Revenue Service and the Department of Labor in advance to request that contributions to the trust will be able to be pre-tax, and that the Trust will not be subject to ERISA.
WHY NOW? The preamble to the Act outlines the statistic that 6.3 million California workers do not have access to a retirement plan, and that 75% of those workers earn less than $50,000 per year. It is much easier for employees to save through a workplace retirement program than on their own. About 50% of workers retire at or near poverty putting an additional strain on safety net programs. That also puts pressure on the state’s employment rate since older workers cannot afford to retire.
YOU HAVE A CHOICE! Whether or not the California Secure Choice Retirement Savings Trust is ever implemented, companies that sponsor their own retirement plan will be exempt from the rules that it imposes. So you have a choice: do nothing, and end up with a state-run retirement plan, or establish your own retirement plan. You can let the state make the rules, or you can set up a plan that suits your needs and the needs of your employees. You can let the state invest your retirement savings, or you can establish an investment mix that you control.
CALL BRI TODAY to find out more about setting up a retirement plan for your company. Yes, there is a retirement crisis looming, but you and your employees don’t have to be a statistic. Set up your own plan – it’s easier than you think. Schedule a Free Consultation to find out how we can help you avoid a state-run plan!
To read the text of the California Secure Choice Retirement Trust Act for yourself, go to http://leginfo.legislature.ca.gov/faces/billNavClient.xhtml?bill_id=201120120SB1234