California Secure Choice Retirement Savings

On September 29, 2016 California Governor Jerry Brown signed Senate Bill 1234 – chapter 804, approving the implementation of the California Secure Choice Retirement Savings. The most ambitious push to expand retirement security since the passage of Social Security in the 1930s.

The mission is to promote greater retirement savings for California’s private-sector workers who currently lack access to employer-sponsored retirement plans by providing access to a voluntary, low-risk, low-cost, portable retirement savings plan that enables direct payroll contributions into a personal Individual Retirement Account (IRA) managed by a private-sector financial firm overseen by the Secure Choice Board.

Secure Choice applies to employers, with five or more employees, who do not offer an employer-sponsored retirement plan. Employers who fit this definition will be required to either offer an employer-sponsored retirement plan, or enable their employees to make a direct payroll contribution to the employee’s personal Secure Choice Retirement account. This requirement will not go into effect until the Secure Choice program is fully operational, which is anticipated to be sometime late 2018.

Employers who elect to enroll their employees in Secure Choice would have limited administrative responsibilities. They would be required to:

  1. Enable employees to make an automatic contribution from their paycheck into their Secure Choice Account.
  2. Transmit the payroll contribution to a third party administrator to be determined by the Board.
  3. Provide state developed informational materials about the program to their employees.

 

When Would the Employer Mandate Go Into Effect?

The mandate will not go into effect until the program is fully operational. It will then be phased in over a 3 year period. The goal is for the program to begin operations sometime in 2018. That means employers with 100 or more employees that do not offer a retirement plan will be required to provide a retirement plan or access to Secure Choice in 2019. Employers with more than 50 employees will be mandated to participate within two years after the program is open for enrollment. which is likely to be 2020, ; and within 36 months all employers with less than 50 employees will be required to participate, likely to be 2021.

Would the Employee Retirement Income Security Act (ERISA) apply to employers mandated to participate in Secure Choice?

No. The federal Department of Labor (DOL) has released new rules for state administered retirement programs like Secure Choice that exempt all employers who are mandated to participate in a Secure Choice type program from ERISA.

Employer safeguards:

  • Employers would not have any liability for an employee’s decision to participate in, or opt out of, the Program;
  • Employers would not have any liability for the investment decisions of participating employees;
  • Employers would not be a fiduciary of the Program;
  • Employers would not bear responsibility for the administration, investment, or investment performance of the Program;
  • Employers would not be liable with regard to Program design, investment returns, and benefits paid to participating employees;
  • Employers would not be able to contribute to the employee account unless there was a change in federal law that permitted contributions without triggering ERISA requirements.

 

Visit the California Department of Treasury Secure Choice website for more detailed information.

Source: California State Treasurer  |  2017 © Copyright Payroll Masters

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