CALIFORNIA, WHOSE STATE-RUN PUBLIC PENSION PLANS ARE WOEFULLY UNDERFUNDED, WILL NOW REQUIRE BUSINESSES TO OFFER A STATE-RUN RETIREMENT PLAN FOR THEIR EMPLOYEES
Beginning June of 2020, and phasing-in through June of 2022 for businesses with 5 or more employees, California is mandating businesses provide employees with a retirement plan option. CalSavers, a state-run retirement plan will launch in 2020, and absent another option, employers will be required to enroll employees in the new program, or alternatively, face possible fines.
Although CalSavers is “minimally invasive”, so to speak, there will be added hours and maintenance duties required of the employer. The costs of the State plan largely rest on the employees, but at a cost that is no different from a typical 401(k) plan. The State plans are also being set up as ROTH accounts, which do not carry the tax deferred benefit of 401(k) contributions. Most notably, the mandatory State plan offers only limited investment options. In comparison, a 401(k) plan, can offer its participants a rich variety of investment options and even professional advisors that can customize a retirement portfolio that is tailored to each participant’s personal goals, time horizon to retirement, and risk tolerance.
Rather than the State-run mandate, employers may wish to consider a far more efficient and beneficial option for your business and its employees. We have partnered with some of the leading and lowest cost service providers in the industry, such as TD Ameritrade and Morningstar, to formulate a 401(k) plan for your small business that fulfills the requirements of the mandate, increases tax deductions and flexibility for the business owner and employees, while providing your employees with one of the most highly sought-after employee benefits.
Setup and administration costs for the 401(k) plan is extremely affordable. Set-up costs can be as low as $895. Annual administration costs are also as little as $895 per year and can be charged to the participants’ accounts pro-rata. In addition, the federal government offers up to a $500 credit for the first 3 years of the 401(k) plan.
Our affiliate, Dorman Skorheim Wealth Management, can provide customized portfolio management. A professional investment adviser would meet with each participant to discuss his or her risk profile and objectives to develop a plan to help achieve their retirement goals. The investment management fees are again charged to each individual participant pro-rata and are less than 0.90% of the account value annually, while CalSavers is charging as high as 0.95%, with no actual retirement education, professional advice, or custom investment management.
California businesses that don’t currently offer a retirement plan for employees will be required to install a State-run plan over the next few years. The California plan does not allow tax advantaged accounts and is not structured to benefit employers. On the other hand, employers can create a low-cost retirement plan with tax advantages for both the employer and employees, with more investment choices and the availability of professional investment management.
I would be more than happy to discuss the 401(k) option further and show you the many benefits that are available. Please call me at (949) 438-7432 or email me at james@dormanskorheim.com to learn more.