Every retirement plan has fees – that’s a given. When 401(k) plans are provided by employers as part of their employee benefits, it becomes their duty as a fiduciary to ensure that the fees are maintained at reasonable levels.

Why? As an employer offering a 401(k) plan to your employees, it’s important to ensure that the fees associated with the plan are reasonable and competitive. Not only is this a fiduciary responsibility, but it also affects the overall success of the plan and the financial well-being of your employees.

In 2023, there are new fee benchmarking requirements that employers need to be aware of to ensure compliance and avoid potential penalties.

What Does it Mean to Benchmark a 401k?

401k benchmarking involves reviewing and assessing a company’s retirement plan to ensure that it complies with industry and ERISA standards, thereby serving as a due diligence process to verify that the plan provider is fulfilling their fiduciary responsibilities.

Moreover, given the evolving landscape of investing and retirement planning, it’s crucial to keep a 401k plan current. This involves evaluating the plan’s design, different service providers, investment options, and associated fees.

How 401(k) Benchmarking Works

401(k) benchmarking is a critical process for ensuring that a company’s retirement plan remains competitive and meets the necessary standards. While a 401(k) plan offers convenience and is a popular option for retirement investing, it is the company’s responsibility to ensure that the plan is performing well. 

Through an annual check-up, the firm assesses the plan’s design, evaluates its fees, and reviews the services provided by the plan provider. 

Preventing Costly Mistakes in 2023: Your 401(k) Benchmarking Checklist

This process reduces the risk of violating ERISA rules, protects plan participants and beneficiaries, and can ultimately save the firm money. The Employee Retirement Income Security Act (ERISA) mandates minimum standards for retirement plans and requires the plan sponsor to verify that the 401(k) plan has reasonable fees.

Review the Plan’s Fees 

Employers should review the fees associated with their 401(k) plan to determine if they are reasonable and competitive. This includes investment-related fees, administrative fees, and any other fees associated with the plan.

Benchmark the Fees 

Employers should benchmark the fees associated with their plan to those charged by other similar plans in the marketplace. This can be done using a third-party benchmarking service or by conducting a survey of other plans.

Evaluate of Plan Features

While the primary goal of any 401(k) plan is to help employees meet their retirement goals, recent years have seen a shift in what employees want from their benefit plans. Conducting a full review of your plan will allow you to evaluate current plan features and make changes as necessary based on your employee demographic. Analyze plan participation numbers and engagement rates, and consider implementing automatic enrollment or offering an employer match, Roth, and additional after-tax contributions to incentivize employee participation. 

Additionally, ensure that employees can easily access information on how to take full advantage of the retirement plan, such as financial wellness resources and access to licensed representatives who can help with investment selection, debt management, home buying, and saving for college education.

Ensure You Maintain Proper Documentation

When faced with an audit, how can you prove that you’ve met your fiduciary obligations? The answer lies in having documented processes based on facts.

As an employer, it’s your responsibility to offer a variety of investment options to your employees, each with different cost levels, in their best interests. Active funds, for instance, are usually more expensive than passive index funds. However, it’s important to assess the overall benefits to your company and employees before making a decision.

Your plan must have an investment policy statement that directs investment decisions. After the IPS is established, you can select a list of fee-friendly investment options that align with the IPS. As a sponsor, you must document this process, as well as the following aspects as they relate to fees:

  • What is the total cost?
  • What is the record keeper’s fee?
  • What is the advisor’s fee?
  • What is the fee charged by individual investment companies?

Employers have often been penalized or required to reimburse employees for mismanaged fees due to a lack of documentation and process in litigation. As an employer, you don’t have to have the cheapest fees; you just need to ensure that you’re “acting with loyalty and prudence” and that the fees are justified.

Review Compliance Procedures

The effects of inflation are being felt across the board, including by plan sponsors and advisors who are experiencing rising costs for managing and operating retirement plans. In anticipation of increased Employment Retirement Income Security Act (ERISA) penalties due to inflation, plan sponsors and advisors should take action now to prevent and mitigate potential impacts. This involves a review of compliance procedures, such as automated collection of funds and information, notifications, and compliance report filing. 

With penalties for non-compliance on the rise, ensuring that automated systems are functioning properly can help prevent unexpected and unwelcome penalties. It’s important to budget accordingly for the possibility of having to pay inflation-increased penalties in case mistakes occur.

Provide Fee Disclosures 

Employers should provide fee disclosures to plan participants annually. These disclosures should be clear and concise and include the investment-related fees and administrative expenses associated with the plan.

Take Action as Needed 

If the benchmarking process reveals that the fees associated with the plan are not reasonable or competitive, employers should take action to address the issue. This may include renegotiating fees with service providers, changing service providers, or taking other steps to reduce plan costs.

An Approach to Benchmarking 401(k) Plans

Benchmarking 401(k) plans is an essential step in ensuring that you offer a competitive package to your employees. An independent review can help you compare your plan with other similar plans and provide recommendations if necessary. It’s important to document valid reasons if your fees appear to be high, such as providing additional services like a 24/7 help desk, educational programs, or translators for non-English-speaking employees. These factors may be important to employees and result in higher costs.

However, it’s not always ideal to have the lowest fees, as this can indicate a lack of quality services or a limited investment lineup. Therefore, it’s crucial to have an advisor who can bid out your plan to several providers every three years, compare the options, and negotiate on your behalf to ensure you don’t change plans unnecessarily.

In Summary

The new fee benchmarking requirements for 401(k) plans in 2023 are designed to ensure that plan fees are reasonable and necessary for the administration of the plan. Employers should take the necessary steps to comply with the regulations, including reviewing the plan’s fees, benchmarking the fees, documenting the benchmarking process, providing fee disclosures, and taking action as needed. By doing so, employers can fulfill their fiduciary responsibilities and help their employees achieve financial success in retirement.

Learn More About 401(k)Plans

Employers should create an effective 401k communication plan that helps employees make informative decisions for retirement.

Contact RWM today to review your existing 401k or talk through a plan of action to offer retirement savings to your employees. 

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does the advisor assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations. 

Managing a workplace retirement plan is a team effort. Everyone needs to understand their roles and responsibilities to ensure the retirement goals of all employees.

The key players in administering a 401(k) or similar employer-sponsored plan include:

  • The plan sponsor, who appoints an officer or employee of the company as the named fiduciary (plan administrator).
  • The plan administrator, who may outsource certain tasks to service providers, but still retains ultimate responsibility for any outsourced activities.
  • The plan participants, who play a key role in the administration of the plan.
  • Service providers and regulators, who have specific responsibilities related to the plan.

Read on to learn more about how this team functions and how each member plays an important role in ensuring the success of the 401(k) plan.

The Plan Sponsor (The Employer)

The plan sponsor has a legal obligation to act as a fiduciary. This means they must act in the best interest of the plan’s participants, and make informed decisions. 

One of the key responsibilities of the plan sponsor is to conduct regular audits of the plan. This includes reviewing the plan’s financial statements, ensuring compliance with legal and regulatory requirements, and monitoring the performance of the plan’s service providers.

The plan sponsor should also have a process in place for selecting and monitoring service providers, such as investment advisers or recordkeepers. This includes conducting due diligence, reviewing contracts, and monitoring performance on an ongoing basis.

In addition, the plan sponsor should verify the plan has adequate insurance coverage and that all necessary documents, such as the summary plan description and trust agreement, are up to date and in compliance with applicable laws.

It’s important for the plan sponsor to keep themselves informed about the current laws and regulations and make sure that the plan is in compliance. They should also take steps to educate their employees about the plan and the responsibilities of all parties involved.

Named Fiduciary/Plan Administrator

The Named Fiduciary/Plan Administrator is the person chosen by the employer to manage and run the 401(k) plan. 

As a fiduciary, they have a legal duty to act in the best interest of the plan’s participants and make informed decisions. This includes choosing and monitoring service providers like investment advisers or recordkeepers and making sure the plan is following all laws and regulations.

The Named Fiduciary/Plan Administrator’s duties may also include:

  • Filing annual reports and other paperwork
  • Communicating with plan participants and giving them information about the plan
  • Approving transactions and investments
  • Checking financial statements and other reports
  • Keeping the plan’s records and documents
  • Working with service providers to make sure the plan is being run correctly
  • Communicating With the employer, service providers, and participants to make sure the plan is working in their best interest.

Plan Participants

401(k) plan participants have certain rights and responsibilities related to the plan, including the right to contribute, receive information, and direct the investment of their contributions.

Participants can choose how much to contribute, subject to any limitations established by the plan sponsor. They also have the right to change their contribution amount at any time and to direct the investment of their contributions among the options offered under the plan.

401(k) plan participants also have the right to receive certain information about the plan, including the summary plan description,  financial statements, and information about investment options. They also have the right to file a complaint or appeal if they believe their rights under the plan have been violated.

It’s important for 401(k) plan participants to communicate with the plan sponsor and administrator to stay informed about their rights and responsibilities.

Service Providers and Regulators

Service providers and regulators play an important role in the administration of a 401(k) plan. Service providers are companies or organizations that provide various services to the plan, such as investment management, recordkeeping, and trustee services. Regulators are government agencies that oversee and enforce compliance with laws and regulations governing 401(k) plans.

Service providers may include:

  • Investment managers, who manage the plan’s investment options and provide investment advice to the plan sponsor and plan administrator;
  • Recordkeepers, who maintain records of the plan’s assets, transactions and participant account balances;
  • Trustees, who hold the plan’s assets in trust and are responsible for safekeeping the assets;

Learn More About 401(k)Plans

Employers should create an effective 401k communication plan that helps employees make informative decisions for retirement.

Contact RWM today to review your existing 401k or talk through a plan of action to offer retirement savings to your employees. 

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does the advisor assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations.

The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 offers solutions for a range of issues, including Required Minimum Distributions and student loan debt.

The bill has the potential to strengthen the retirement system and improve your financial readiness for retirement. The law builds upon previous legislation that raised the age for required minimum distributions (RMDs) and permitted workplace savings plans to offer annuities, ultimately concluding a prolonged debate on enhancing retirement savings through employer plans and IRAs.

The key retirement provisions of the Secure 2.0 Act include:

  • Raising the age for retirees to begin taking RMDs from IRA and 401(k) accounts
  • Modifying the catch-up contribution limits for older workers with workplace plans
  • Matching for Roth Accounts
  • Assistance with student debt
  • Simplifying the process of transferring accounts from one employer to another
  • Saving for emergencies within retirement accounts. 

These new provisions will impact employees and employers alike. In this blog, we will discuss the key provisions of the Secure Act 2.0 and what these changes could mean for your retirement. 

Significant Changes For Retirement Accounts

Starting on January 1, 2023, the required age for taking money out of your retirement account (RMDs) will increase to 73, up from 72. However, if you turned 72 in 2022 or earlier, you will still need to take money out of your accounts as usual.

Penalties for not taking RMDs will decrease as well. Currently, if you don’t take an RMD, you will be charged a penalty of 50% of the amount you were supposed to take out. Starting in 2023, the penalty will decrease to 25% of the RMD amount not taken. If you take the missed RMD and file a corrected tax return in a timely manner, the penalty will be reduced to 10% for IRA accounts.

Additionally, starting in 2024, Roth accounts in employer retirement plans will be exempt from RMD requirements, and the Secure Act 2.0 pushes the age of RMD to 75 starting in 2033. And if you’re receiving annuity payments from your employer retirement plan that exceed the RMD amount, you can apply the excess payment to that year’s RMD.

Higher Catch-up Contributions

Starting January 1, 2025, people between 60 and 63 years old will be able to put an extra $10,000 per year into their workplace retirement accounts as catch-up contributions. This amount could increase each year based on inflation. Currently, the catch-up contribution limit for people 50 years or older is $7,500.

Keep in mind that if you make more than $145,000 in the previous calendar year, any catch-up contributions you make when you’re 50 or older will have to be put into a Roth account, meaning you’ll have to pay taxes on the money before it’s deposited. The income limit can also increase with inflation.

Starting in 2024, the catch-up contribution limit for IRAs for people aged 50 or older will be indexed to inflation, meaning it could increase each year based on cost-of-living adjustments.

Matching for Roth Accounts

Employers will be able to offer their employees the option of getting matching contributions for their Roth accounts. However, it may take some time for plan providers to offer this option and for payroll systems to be updated. Before, matching contributions in employer-sponsored plans were made before taxes were taken out. With Roth accounts, contributions are made after taxes, but the earnings can grow tax-free.

Unlike Roth IRAs, employer-sponsored Roth accounts will still require RMDs until the tax year 2024.

Qualified Charitable Distributions (QCDs)

Starting in 2023, if you’re at least 70 ½ years old you’ll be able to give up to $50,000 (adjusts annually for inflation) as a one-time gift to certain types of charities. This can include a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity as part of your Qualified charitable distributions (QCDs) limit. 

The Secure Act 2.0 expands the types of charities that can receive QCDs. This gift will count towards your annual RMD if you’re required to take one. It’s important to note that the gift must come directly from your IRA by the end of the calendar year and not all charities qualify for QCDs.

Retirement Plans for Employees with Student Debt

Starting in 2024, the SECURE 2.0 Act allows employers to make contributions to their employees’ workplace savings plans, even if the employees are still paying off student loans. 

 Workers will no longer have to choose between paying off their college loans or saving for retirement. Additionally, employers will be able to make contributions that match the amount of student loan debt repaid by the employee in a given year. This can be an effective way to attract and retain employees as they plan for retirement.

Emergency Savings

In 2024, defined contribution retirement plans will be able to include an emergency savings account as a designated Roth account that can accept participant contributions from non-highly compensated employees. Contributions will be limited to $2,500 per year, or lower if set by the employer. The first 4 withdrawals in a year will be tax and penalty-free. Depending on the plan’s rules, contributions may be eligible for an employer match. An emergency savings fund can help plan participants save for short-term and unexpected expenses, and also provides them with penalty-free access to funds.

Improved Legislation

The Secure Act 2.0 offers a variety of solutions to retirement-related issues, including raising the age for RMDs, modifying catch-up contributions, and allowing employers to match contributions for Roth accounts. These changes aim to strengthen the retirement system and improve Americans’ financial readiness for retirement.

Read the full SECURE Act 2.0 here.

Need Help Preparing for Retirement?

Preparing for retirement can be a complex and overwhelming process. You need to have a thorough understanding of how to make the most of your distributions and avoid potential pitfalls to ensure a comfortable and secure retirement. It can be beneficial to seek guidance from a team of financial experts to develop a personalized plan that aligns with your specific needs and goals.
Contact RWM today to learn more about retirement plan distributions and how we can help you get ready for retirement.

Retirement is a major milestone in life and a time when you’ll have the freedom to enjoy your hard-earned leisure time. However, it’s also a time when you’ll be relying on your savings and investment income to support your lifestyle. 

Retiring with a spending plan starts with just that: planning. Let’s take a look at how you can begin planning for your retirement today. 

Determine Your Income Sources

Determining your income sources in retirement is an important first step towards creating a spending plan that will allow you to live comfortably during this new stage of your life. There are several different types of income that you may have in retirement, and it’s important to consider all of them when creating your plan.

Social Security is a government-run program that provides financial assistance to retired Americans. If you’ve paid into the system through payroll taxes during your working years, you’ll be eligible to receive Social Security benefits when you retire. These benefits are based on your earnings history, and the amount you’ll receive will depend on how much you’ve paid into the system and how long you’ve worked.

A pension is another type of income that you may receive in retirement. A pension is a regular payment that you receive from an employer or other organization in exchange for your past service. Pensions can be either defined benefit plans, which provide a set amount of income each month, or defined contribution plans, which provide a set amount of money that you can use to invest in a retirement account.

Retirement savings accounts, such as 401(k)s and IRAs, are another important source of income in retirement. These accounts allow you to save money for retirement on a tax-advantaged basis, and the money you save in them can be used to generate income in retirement through investments in stocks, bonds, and other assets.

Finally, you may also have other investments, such as stocks, bonds, or real estate, that can generate income in retirement. It’s important to consider all of these income sources when creating your spending plan, as they can all play a role in helping you to maintain your desired lifestyle during retirement.

Estimate Your Expenses

When creating a spending plan for your retirement, it’s important to make a comprehensive list of all of the expenses that you expect to have. This may include things like housing, healthcare, food, transportation, and entertainment. Be sure to include both fixed and variable expenses in your plan, as well as any one-time expenses that you may have. 

Fixed expenses are those that stay the same each month, such as a mortgage payment or car insurance premium, while variable expenses may vary from month to month, such as the cost of groceries or entertainment. One-time expenses are expenses that only occur occasionally, such as home repairs or travel. 

By considering all of these types of expenses, you can get a more accurate picture of your financial needs in retirement and create a spending plan that will allow you to live comfortably. It’s a good idea to review your expenses periodically to ensure that your spending plan is still on track and to make any necessary adjustments.

Determine Your Retirement Budget

Once you know your income sources and expenses, you can determine your retirement budget. This is the amount of money you have available to spend each month. If your income is less than your expenses, you’ll need to make adjustments to either your income or your expenses (or both). On the other hand, if your income is more than your expenses, you may be able to save the excess for future needs or splurge on a special treat.

Consider Inflation 

Inflation is the gradual increase in the cost of goods and services over time. It’s important to consider inflation in your spending plan because it can impact your budget over the course of your retirement. For example, if you’re planning to spend $50,000 per year in retirement, but inflation increases the cost of goods and services by 3% per year, your expenses will actually be closer to $58,000 after 10 years. To account for inflation, you may need to increase your income or make adjustments to your spending plan.

Review and Adjust Your Spending Plan

 It’s a good idea to review your spending plan regularly to ensure that it’s still on track. This may involve making adjustments to your income, expenses, or both. For example, if your investment portfolio isn’t performing as well as you’d hoped, you may need to reduce your spending or find ways to increase your income. On the other hand, if your investments are doing well, you may be able to increase your spending or save more for the future.

Final Thoughts

By creating a spending plan for your retirement, you can ensure that you have a solid financial foundation to support your desired lifestyle. This can help you relax and enjoy your golden years, knowing that you have a plan in place to support you financially.

The purpose of RWM Financial Group is to promote plan success via our knowledgeable team and a robust set of tools. 

RWM will lead the way toward retirement readiness for pre-retirees and new generations of employees—whose success comes from your plan’s success. Combining professional dedication, cutting-edge tools, and high-impact education with a commitment to service, RWM Financial Group’s process sets a clear direction toward retirement for your valued employees and balances their needs with yours. The RWM process uses features and services that strive to create value for the employee and the employer.

For a better understanding of retirement savings plans, read our article here.

Retiring can be an uncertain time, but with the right planning and preparation, it can also be an exciting and enjoyable new chapter in your life. Here are five things you should consider doing five years before you retire:

  1. Look at your income
  2. Think about your home
  3. Keep control of your debt and taxes
  4. Plan for healthcare expenses
  5. Imagine your ideal retirement

Let’s talk about each of these in detail. 

Look At Your Income 

Determine how much income you’ll need in retirement and consider moving some of your money into income-producing investments to provide a steady stream of income.

 It’s also important to consider inflation and the potential for rising costs of living in the future, as this could impact your overall income needs. Reviewing your income and expenses can help you create a retirement budget that is realistic and feasible for your needs. It may also be helpful to work with a financial professional who can help you create a retirement plan that is tailored to your specific financial situation and goals.

Think About Your Home

There are a few key things to consider when thinking about your home in the years leading up to retirement. First, consider your current and future needs. Do you need a larger home to accommodate your family, or would a smaller home be more suitable for your lifestyle in retirement? If you’re considering downsizing, think about the cost of selling your current home and the potential cost of purchasing a new home. You may also want to consider the location and any potential maintenance costs of a new home.

Additionally, it may be helpful to think about the potential tax implications of selling your home. Depending on your situation, you may be able to exclude some or all of the capital gain from the sale of your home from your taxable income. It’s a good idea to review your options with a tax advisor to see if selling your home could potentially benefit you tax-wise.

Finally, consider the cost of living in different areas. Moving to a location with a lower cost of living could help reduce your expenses in retirement, but it’s important to carefully weigh the pros and cons of a move before making a decision. You may want to visit potential new locations and consider factors like the availability of healthcare, access to amenities, and proximity to friends and family.

Keep Control of Your Debt and Taxes

Paying off as much debt as possible before retirement is a smart financial move because it can help reduce your expenses and increase your cash flow in retirement. This can be especially important if you’re relying on fixed income sources, such as Social Security or a pension, as these sources of income may not increase over time to keep up with inflation. It’s a good idea to prioritize paying off high-interest debt first, as this can save you the most money in the long run.

One way to lower your taxable income is to work with a tax advisor to see if converting a traditional IRA to a Roth IRA is a viable option for you. With a traditional IRA, you contribute pre-tax dollars, but you’ll pay taxes on the money when you withdraw it in retirement. A Roth IRA, on the other hand, is funded with after-tax dollars, so you won’t pay taxes on the money when you withdraw it in retirement. This can be a good option for people who expect to be in a higher tax bracket in retirement, as it allows you to pay taxes on the money at your current, potentially lower tax rate. However, it’s important to carefully consider the potential tax implications of a Roth IRA conversion, as it may not be the right choice for everyone. A tax advisor can help you weigh the pros and cons of a Roth IRA conversion and determine if it’s a good option for your specific financial situation.

Plan for Healthcare Expenses

Planning for healthcare expenses in retirement is an important consideration because healthcare costs can be a significant portion of your budget in retirement. Here are a few things to consider when planning for healthcare expenses:

Make sure you have the proper healthcare insurance. This may include enrolling in Medicare if you’re eligible and considering supplemental insurance policies to help cover out-of-pocket costs. It’s a good idea to review your options carefully and consider factors like your current and future healthcare needs, the cost of premiums, and the coverage offered by different plans.

Consider long-term care options. Long-term care costs, such as nursing home care or home healthcare, can be a major expense in retirement. It’s a good idea to consider your potential need for long-term care and explore options for paying for it. Options may include purchasing long-term care insurance, setting aside money in a dedicated savings account, or including long-term care provisions in your estate plan.

Think about how healthcare expenses will fit into your budget. It’s important to consider how healthcare expenses will fit into your overall retirement budget and make sure you have enough savings to cover these costs. This may involve setting aside money in a dedicated healthcare savings account or factoring in healthcare costs when creating a retirement budget.

It’s a good idea to review your healthcare options and plan for healthcare expenses well in advance of retirement to ensure that you have the coverage and resources you need to meet your healthcare needs in retirement.

Imagine Your Ideal Retirement

Here’s the fun part: paint the picture of your ideal retirement. You can do this by asking questions such as:

  • What do you want your retirement to look like? Do you want to travel the world, spend more time with your family and friends, or take up a new hobby? Do you want to stay in your current location or move somewhere new?
  • How will you spend your time? Do you want to be active and stay engaged with your community, or do you prefer a more laid-back lifestyle?

Take some time to think about your goals and aspirations for retirement and consider how you might continue to pursue your current interests and passions in your daily life.

Make sure your assets are structured in a way that will allow you to have the retirement you envision.

Final Thoughts

Retirement planning can be confusing but  can have many benefits for any individual. 

Not sure where to start? We got you covered. 

The purpose of RWM Financial Group is to promote plan goals via our knowledgeable team and a robust set of tools. 

RWM can help lead the way toward retirement readiness for pre-retirees and new generations of employees—whose success comes from your plan’s success. Combining professional dedication, cutting-edge tools, and high-impact education with a commitment to service, RWM Financial Group’s process sets a clear direction toward retirement for your valued employees and balances their needs with yours. The RWM process uses features and services that strive to create value for the employee and the employer.

For a better understanding of retirement savings plans, read our article here.

The CalSavers program is a big step in ensuring all California employees have the right to a retirement plan, but if you’re a business owner you may want to think twice before enrolling. It can be advantageous to both you and your employees to set up a qualified retirement program. 

If you’re a business with five or more employees in California, then you need to either have your own retirement plan or be enrolled in CalSavers. And if you have one to four employees, you have until December 31st, 2025 to meet these requirements. 

In this article, we’ll look at different retirement programs to see what the best option is for your company, why it’s worth setting up your own, and the benefits these programs provide that you won’t get from CalSavers.

Types of Qualified Retirement Plans

We’ll briefly look at what plans are available so you have a general idea of what you can offer your employees. If you want a more detailed understanding of retirement plans, check out our article here.

According to the U.S. Department of Labor, there are a few types of qualified retirement plans:

  • A Defined Benefit Plan promises a specific monthly benefit at retirement. It may state the benefit as a dollar amount or calculate the benefit through a formula that often factors in salary and service to the company. A common example of this is a Cash Balance Plan. 
  • A Defined Contribution Plan does not promise a specific benefit amount. The employee or employer, and sometimes both, contribute to a retirement account for the employee. The employee ultimately receives the balance in their account. Common examples include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans.
  • A Simplified Employee Pension Plan (SEP) allows employees to make contributions on a tax-favored basis to their IRAs. SEPs are subject to minimal reporting and disclosure requirements. 

The plan you choose for your business will depend on factors such as the costs of the plan, the size of your business, the investments offered in the plan, and the goals and needs of your employees. Having a qualified financial planner can alleviate a lot of the headaches and burden that comes with choosing the perfect plan for your company’s needs. 

Advantages of Qualified Retirement Plans for Employers

Setting up your own retirement plan comes with a lot of advantages to help save you money and improve your business’s long-term financial health. These include…

  • Customization: With your own qualified retirement plan, you can fully customize the plan to meet the specific needs of your business. A qualified retirement plan provides you with a wide range of contribution levels, vesting schedules, and investment options. The CalSavers program doesn’t provide the same amount of range and offers more of a one-size-fits-all approach.
  • Tax Benefits: Money you contribute to your qualified plan can be tax deductible up to certain limits depending on which plan you choose. Assets that are in the plan also grow tax-free until they are distributed to employees upon retirement. 
  • Attract High-Level Employees: Having a customized qualified retirement program that is best suited to the type of employees you hire will set you apart from other businesses. You can also set up your plan to incentivize employees to stay at the company and reduce turnover. 

Advantages for Employees

As we said at the end of the last section, the right qualified retirement plan can help you attract and retain high-level employees. But how does the right plan do this?

  • Tax-Free Savings: Employees can contribute income to a plan on a pre-tax or tax-deferred basis, helping them save more for retirement and possibly lower their annual tax bill. 
  • Various Investment Options: Qualified Retirement Plans can offer options such as mutual funds and individual stocks, giving employees individual customization to their needs and tolerance for investment risk.
  • Employer Matching: Some plans, such as a 401k, allow employers to make matching contributions to the employee’s plan, potentially doubling the amount of money an employee can save for retirement.

Disadvantages of the CalSavers Program

The CalSavers program is a great concept for ensuring all workers in California have the right to a retirement program no matter the size of the company they work at. However, the best option for business owners in California is still a qualified retirement plan due to the disadvantages that come with opting into the CalSavers Program. These disadvantages include…

  • Roth IRA Income Limits: The CalSavers Program is a Roth IRA, meaning it’s subject to the income limits that come with that type of plan. If your employees make above a certain amount they can’t participate in the CalSavers program. This could potentially lose you high-level employees, due to the lack of a retirement program option. 
  • Taxes for Employees: CalSavers only allows your employees to make after-tax contributions, reducing the amount of money they save for retirement and not reducing their annual tax bill as other plans offer. 
  • Limited Options: Other plans offer a much broader range of investment options when compared to the CalSavers program, as well as additional resources to help employees make the right decisions based on their needs and risk tolerance. 
  • No Employer Matching: One of the biggest disadvantages of the program is that CalSavers does not allow employers to match their employee’s contributions, which is often a great incentive for employees to participate in the program. Employer contributions are also a great way for business owners to attract and retain employees in a tax-deductible way. 

Learn More About Qualified Retirement Plans

Finding the right retirement plan for your business can be overwhelming. If you want to learn more about how qualified retirement plans work, or need assistance in creating the perfect plan for your business needs, contact us today. We’d love to help you reach your financial goals. 

This material is being provided as a general template for plan sponsor review.  Plan sponsors should seek legal guidance in developing a document specific to their plan.  In no way does advisor assure that, by using this template, plan sponsor will be in compliance with ERISA regulations. 

In October of 2022, the Internal Revenue Service (IRS) announced that the amount individuals can contribute to 401(k) and IRA plans will increase. Why? The IRS is increasing the contribution limits in order to adjust to inflation. The contribution limit changes reflect cost of living changes from this year.

In this blog, we’ll break down these plans, the limit increases and dive into what these changes mean for taxpayers. Let’s get started.

401(k), 403(b), and Most 457 Plan Increases

The 401k is a retirement savings plan that is sponsored by an employer. Employees who participate in a 401k plan can choose to have a portion of their paycheck deducted and deposited into their 401k account. The money in a 401k account grows tax-deferred, which means that you will not pay taxes on the money until you withdraw it in retirement. 401k plans also offer a variety of investment options, which can make them a good choice for people who want to have more control over their retirement savings.

According to the IRS, for 2023, “the amount an individual can contribute to a 401(k), 403(b), and most 457 plans increases to $22,500, up from $20,500 in 2022. The catch-up contribution amount, for employees 50 and older who participate in these plans, increases to $7,500 from $6,500.”

That’s $2,000 – or roughly 9.8% – more than the current $20,500 federal contribution limit.

The catch-up contribution in the 401(k) and other workplace plans or, the amount plan participants who are 50 and older may save on top of the federal contribution limit, will also be raised. 

In 2023, this limit will rise to $7,500 – up 15.4% from $6,500 today. What does this mean for taxpayers? If you’re 50 or older, you can contribute up to $30,000 in 2023 (not including any matching contributions your employer may add). 

IRA (Individual Retirement Accounts) Limit Increases

An IRA is an individual retirement account that is not sponsored by an employer. Anyone can open an IRA, regardless of whether they are employed. Like a 401k, the money in an IRA grows tax-deferred, and you will not pay taxes on the money until you withdraw it in retirement. IRAs also offer a variety of investment options as well.

The limit on annual contributions to an IRA will increase from $6,000 to $6,500. The IRA catch up contribution limit for individuals age 50 and over is not subject to an annual cost of living adjustment and remains $1,000.

Income limits for Roth IRA contributions will increase in 2023 as well. The income phase-out range for Roth IRAs will be between $138,000 and $153,000 for single filers and heads of household (up from between $129,000 and $144,000).

The range for married couples filing jointly goes up to $218,000 to $228,000 (from between $204,000 and $214,000). The phase-out range for married individuals filing separately remains at $0 to $10,000.

Additionally, if you personally don’t have access to a workplace plan but your spouse does, then your modified AGI must be less than $228,000, up from $214,000 currently, to get some deduction for your IRA contributions.

What Do These Increases Mean for Taxpayers?

It may be time to up your 401(k) and IRA contributions and take advantage of these increases. Even if you can only contribute a small amount, it’s important to get started. The earlier you start saving, the more time your money has to grow through compounding interest. 

Learn why you should start saving for retirement early, here.  

Final Thoughts

Retirement planning can be confusing, but opening a 401k and/or an IRA can have many benefits for any individual. 

Not sure where to start? We got you covered. 

The purpose of RWM Financial Group is to promote plan success via our knowledgeable team and a robust set of tools. By working with us, you can help put your employees on the path working toward a secure retirement.

RWM will lead the way toward retirement readiness for pre-retirees and new generations of employees—whose success comes from your plan’s success. Combining professional dedication, cutting-edge tools, and high-impact education with a commitment to service, RWM Financial Group’s process sets a clear direction toward retirement for your valued employees and balances their needs with yours. The RWM process uses features and services that strive to create value for the employee and the employer.For a better understanding of retirement savings plans read our article here.

Having a 401k plan for your employees is an important part of overall employee benefits and can be a great way to motivate them. However, employers must ensure that they have effective communication strategies in place to properly educate their workers on the 401k plans offered and the benefits associated with contributing to them. 

In this blog, we’ll discuss some tips employers should consider when communicating their 401k plans to employees.

Steps to Effectively Communicate 401K Plans to Employees 

1. Explain the Benefits: Employers should clearly explain what benefits their 401k plan provides, such as tax advantages and potential savings for retirement. It is important that employers make sure to provide detailed information on the features and benefits of their plan in order to help employees understand why contributing to a 401k is beneficial.

2. Provide Easy-to-Understand Information: Employers should make sure that their 401k plan communications are easy to understand, with clear language and simple explanations. Documents such as brochures, handouts, or slideshows can be helpful in providing comprehensive information about the 401k plan in an understandable way. 

3. Offer Guidance: Employers should also provide employees with guidance on how to manage their 401k contributions and investments, and when appropriate offer advice for things such as selecting funds or planning for retirement.

4. Encourage Participation: In addition to providing helpful information about the 401k plan, employers should also take steps to encourage participation. Employers should highlight incentives such as employer match programs or potential tax advantages, and provide opportunities for employees to ask questions about the plan.

5. Regularly Audit/Review Plan: Finally employers should also review their 401k plans regularly to ensure that they meet the needs of their employees and are up-to-date with the changing regulations. This will help employers ensure that their 401k plans are competitive and attractive to current and future employees.

By considering these tips employers can create effective communication strategies for their 401k plans, helping to educate and motivate their workforce while also ensuring that they have a competitive plan in place. Employers should make sure to provide detailed information about the features and benefits of their 401k plan, offer guidance on how to manage contributions and investments, highlight incentives for participation, and regularly audit/ review their plan. Taking these steps will help employers communicate effectively with their employees about 401k plans while also ensuring that they have a competitive offering in place.

Questions to Ask Employees When Discussing Retirement Savings 

As employers strive to create a workplace that provides the best 401k plans for their employees, effective communication is essential. To help employers start conversations with their employees about retirement savings, here are a few starter questions employers can ask:

  • Do you understand compounding interest? 
  • How much do you think you’ll need for retirement?
  • Are you familiar with different investment options?  
  • Do you know the difference between a 401k and traditional IRA? 
  • Are you aware of your current 401k plan options?
  • How comfortable do you feel about contributing to your 401k?
  • Do you know the amount of money that employers are matching for employee contributions?
  • Are you familiar with how investments work in a 401k plan?
  • What other retirement savings options do you have available to you outside of your 401k plan?

An employer should also consider adopting a plain language approach to communicating their 401k plan. This would involve:

  • Providing employees with clear explanations of key terms, such as matching contributions, vesting schedules, and loan features
  • Making sure employees understand their options for diversifying investments in their 401k plan
  • Establishing a culture of open communication with employers frequently checking in on employee progress towards retirement savings goals

Review Your Current 401k Offerings

Employers should also audit/ revisit their current 401k offerings to ensure they are competitive, accessible and cost-effective for employees. This includes reviewing: 

  • The overall investment choices available
  • Matching contributions employers are offering
  • Any fees associated with their 401k plans

Create a Communications Plan

Creating a 401k communication plan is an important step employers can take to help employees understand their retirement savings options and make the most of their 401k plans. By taking the time to review their current offerings and communicate with employees, employers can create an effective 401k communication plan that employees will benefit from.  Encouraging employers to audit/ revisit their current 401k offerings will also help ensure they are providing their employees with the best retirement savings opportunities.  

By establishing a culture of open communication employers can build trust with their employees and ensure they are on track with their retirement savings goals.  By investing in a 401k communication plan employers can help empower employees to make the most of their 401k plans and ensure they are well prepared for retirement.

In Summary

Employers should strive to create an effective 401k communication plan that helps employers and employees understand their 401k plans and make the best decisions for retirement savings. With proper communication employers can confidently ensure that their employees are well-informed about their 401k options and employers’ 401k offerings, resulting in more beneficial retirement savings for employers and their employees.

Contact us to review your existing 401k or talk through a plan of action to offer retirement savings to your employees today! 

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. 

Retirement planning can be a daunting task. There are so many different investment options available, it can be hard to know where to start. One of the most common questions people ask is whether they should have both a 401k and IRA. 

The answer to this question depends on a variety of factors, including your income, your age, and how much you want to save for retirement. In this blog post, we will discuss the pros and cons of having both a 401k and IRA, so that you can make an informed decision about which option is best for you!

What is a 401k?

The 401k is a retirement savings plan that is sponsored by an employer. Employees who participate in a 401k plan can choose to have a portion of their paycheck deducted and deposited into their 401k account. The money in a 401k account grows tax-deferred, which means that you will not pay taxes on the money until you withdraw it in retirement. 401k plans also offer a variety of investment options, which can make them a good choice for people who want to have more control over their retirement savings.

What is an IRA?

The IRA is an individual retirement account that is not sponsored by an employer. Anyone can open an IRA, regardless of whether they are employed. Like a 401k, the money in an IRA grows tax-deferred, and you will not pay taxes on the money until you withdraw it in retirement. IRAs also offer a variety of investment options as well.

What’s the Difference Between a 401k and IRA? 

There are a few key differences between 401k plans and IRAs such as:

Contribution Limits

One of the biggest differences is that 401k plans have higher contribution limits than IRAs. For example, in 2019, the contribution limit for 401k plans is $19,000, while the contribution limit for IRAs is $6,000. This means that you can potentially save more money for retirement by contributing to a 401k plan.

Fees

Another difference between 401k plans and IRAs is that 401k plans are typically offered by employers, while IRAs are not. This means that you may have to pay fees to participate in an IRA, but you will not have to pay any fees to participate in a 401k plan.

Loans and Withdrawals

The final difference between 401k plans and IRAs is that 401k plans offer loans and hardship withdrawals, while IRAs do not. This means that you can borrow money from your 401k plan if you need to, but you cannot borrow money from your IRA.

So, Should You Have Both a 401k and IRA? 

The answer to this question depends on your individual circumstances. If you have a 401k plan at work, you may want to contribute to it up to the contribution limit. If you do not have a 401k plan at work, or if you max out your 401k contribution, you may want to consider opening an IRA. Ultimately, the best retirement savings plan for you is the one that you can contribute the most money to.

Is it Good to Have Both?

There are a few advantages to having both a 401k and IRA. For one, it can help you save more money for retirement. Having two accounts also gives you more flexibility in how you Invest your money. You can choose to invest more aggressively in one account and more conservatively in the other, depending on your risk tolerance.

There are a few disadvantages to having both a 401k and IRA as well. For one, it can be difficult to keep track of two accounts. You will also have to pay taxes on the money you withdraw from both accounts in retirement.

Is it Better to Have a 401k or IRA or Both?

There is no easy answer when it comes to deciding whether a 401k or IRA is better for you. It ultimately depends on your individual circumstances. For example, if you are young and have a low income, you may be better off contributing to an IRA because you can get a tax deduction for doing so. On the other hand, if you are older and have a higher income, you may be better off contributing to a 401k because you will not have to pay taxes on your withdrawals in retirement.

There are pros and cons to both types of accounts, so it’s important to weigh all of your options before making a decision. Below, we will take a closer look at the pros and cons of each account:

401k Pros:

  • Employer matching contributions: Many employers will match a percentage of your contributions, which can be a great way to boost your savings.
  • Tax breaks: Contributions to a 401k are made with pre-tax dollars, which means you get a tax break when you contribute.
  • Retirement income: With a 401k, you can choose to receive your retirement income in the form of an annuity, which can provide a steady stream of income in retirement.

401k Cons:

  • Limited investment options: With a 401k, you are limited to investing in the options offered by your employer.
  • Early withdrawal penalties: If you withdraw money from your 401k before you reach retirement age, you will be subject to a 10% penalty.
  • Required minimum distributions: Once you reach age 70 ½, you are required to take minimum distributions from your 401k, which means you will have to pay taxes on the money you withdraw.

IRA Pros:

  • Tax breaks: Contributions to an IRA are also made with pre-tax dollars, which means you get a tax break when you contribute.
  • Flexible investment options: With an IRA, you have a lot of flexibility when it comes to investing your money. You can choose from a wide variety of investment options, including stocks, bonds, and mutual funds.
  • No required minimum distributions: With an IRA, you are not required to take minimum distributions, which means you can leave your money invested for as long as you want.

IRA Cons:

  • Early withdrawal penalties: If you withdraw money from your IRA before you reach retirement age, you will be subject to a 10% penalty.
  • Contribution limits: There are limits on how much you can contribute to an IRA each year. For 2019, the limit is $6,000 ($7,000 if you are age 50 or older).

So, should you have both a 401k and IRA? As you can see, there are pros and cons to both types of accounts. The best way to decide which option is right for you is to speak with a financial advisor who can help you understand your unique circumstances and make the best decision for your future.

Can you have both an IRA and a 401k?

The answer is, yes! In fact, many people find that having both an IRA and a 401k is the best way to save for retirement. Here are some of the benefits of having both types of accounts:

  • You can save more money. If you have both a 401k and IRA, you can contribute a total of $19,500 to your retirement accounts each year (or $26,000 if you’re 50 or older). This is much more than you could save with just one account.
  • You can diversify your investments. When you have both a 401k and IRA, you can spread your money out across different types of investments, which can help you minimize risk and maximize returns.
  • You can take advantage of different tax benefits. 401k contributions are made with pre-tax dollars, which means you get a tax break now. IRA contributions are made with after-tax dollars, but they grow tax-deferred. This means you won’t have to pay taxes on your investment earnings until you withdraw the money in retirement.

There are some drawbacks to having both a 401k and IRA, however. For one thing, it can be confusing to keep track of two different accounts. Additionally, you may have to pay fees to maintain both accounts. But if you’re serious about saving for retirement, having both a 401k and IRA can be a great way to reach your financial goals.

How Much Can I Put in an IRA if I Have a 401k?

The first thing you need to know is that there are limits on how much you can contribute to each type of account. For example, in 2018, the 401k contribution limit is $18,500 for people under the age of 50. This means that if you are over the age of 50, you can contribute up to $24,500 to your 401k. On the other hand, the IRA contribution limit is $5,500 for people under the age of 50, and $6,500 for those over the age of 50.

How Much Will my IRA be Worth in 20 years?

Assuming you start with nothing in your IRA and contribute the maximum each year, you would have $1,048,000 in 20 years.

401K contribution limits for 2019:

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government Thrift Savings Plan is increased from $18,500 to $19,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government Thrift Savings Plan is increased from $6,000 to $6,000. 

IRA contribution limits for 2019:

The IRA contribution limit for 2019 is $6,000. The catch-up contribution limit for those aged 50 and over is $1,000.

Final Thoughts

Retirement planning can be confusing, but if you want to make sure you’re doing everything right, consider opening both a 401k and an IRA. With these two accounts, you can take advantage of different tax benefits, save more money overall, and diversify your investments. Just keep in mind that you may have to pay fees to maintain both accounts, and it can be confusing to keep track of two different sets of investments. But if you’re serious about saving for retirement, having both a 401k and IRA is a great way to reach your financial goals.

For a better understanding of retirement savings plans read our article here.

Retirement contributions are made and at some point if they are abandoned, what happens to them? You don’t want the government managing your money! 401k providers have stepped in and said that they’re going to offer low cost, basic options that are beneficial to employers and are much more customizable than CalSavers for users. 

There are a lot of benefits to going outside of CalSavers, like investing smarter, better returns, matching returns (tax write offs for employers). Let’s discuss the alternative options to using CalSavers. 

CalSavers

CalSavers is a retirement savings program for Californians who do not have access to an employer-sponsored retirement plan. The program is administered by the California Secure Choice Retirement Savings Investment Board, and offers a low-cost, portable retirement savings option for workers in the state.

CalSavers is open to any worker in California who does not have access to an employer-sponsored retirement plan. There is no minimum balance required to open an account, and workers can contribute as little or as much as they want. Contributions to Calsavers are made through payroll deduction, and are invested in a professionally managed, diversified portfolio of low-cost index funds.

Workers who participate in CalSavers will be able to save for retirement and take their savings with them if they change jobs. 

Why is CalSavers an Unpopular Choice?

There are a few potential reasons why employers might not be thrilled about CalSavers. First, the program requires employers to automatically deduct 5% of an employee’s wages (unless the employee opts out). This could lead to some employees feeling like they’re being forced to save, which may not be popular. 

Additionally, employers are responsible for contributing to their employees’ accounts if the employees don’t reach the 5% threshold on their own. This could be viewed as an extra cost for businesses. Finally, it’s possible that some employers feel like the program is too much of a government intrusion into the private sector.

Whatever the reason, it’s clear that not everyone is on board with CalSavers.

401k vs Roth vs IRA

The 401k, Roth IRA, and Traditional IRA are three of the most popular retirement savings plans available to workers in the United States. All three have their own unique benefits and drawbacks, so it’s important to understand the differences between them before deciding which one is right for you.

401K

401k plans are offered by many employers as a way to help their workers save for retirement. The biggest benefit of 401k plans is that they offer tax breaks on the money that you contribute. This can help you save a significant amount of money over time. However, 401k plans also have some drawbacks. One is that you are limited in how much you can contribute each year. Another is that 401k plans often come with high fees.

Roth IRAs

Roth IRAs are Individual Retirement Accounts that are funded with after-tax dollars. This means that you won’t get a tax break on the money you contribute, but you will be able to withdraw the money tax-free in retirement. Roth IRAs also have no contribution limits, so you can save as much as you want. However, Roth IRAs do have income limits, so not everyone can contribute.

IRAs

Traditional IRAs are also Individual Retirement Accounts, but they are funded with pre-tax dollars. This means that you get a tax break on the money you contribute, but you will have to pay taxes on the money when you withdraw it in retirement. Traditional IRAs also have contribution limits, but they are higher than 401k plans. Traditional IRAs also have income limits, so not everyone can contribute.

The best retirement savings plan for you will depend on your individual circumstances. If you want to get a tax break on your contributions, a 401k or Traditional IRA may be the best choice. If you’re not concerned about taxes and you want the ability to save as much as you want, a Roth IRA may be the best choice.

SafeHarbor 401k

The SafeHarbor 401k is a retirement savings plan that allows employees to contribute a portion of their salary into the plan on a tax-deferred basis. This action not only reduces your current taxable income, but it also allows your money to grow tax-free until you withdraw it at retirement. Employers may also choose to make contributions on behalf of their employees, which can further enhance the retirement savings opportunities for employees.

There are a few key features of the SafeHarbor 401k that make it an attractive option for employers and employees alike:

  • Employees can contribute up to $18,500 per year ($24,500 if age 50 or older) on a tax-deferred basis.
  • Employers can make matching or discretionary contributions on behalf of their employees.
  • There is no required minimum distribution age, so employees can keep their money invested for as long as they want.
  • Employees can access their account balance at any time, although there may be taxes and penalties assessed for early withdrawals.

The SafeHarbor 401k is just one of many retirement savings options available to employees and employers. Other popular options include the traditional 401k, 403b, and 457 plans. Each type of plan has its own unique features and benefits, so it’s important to compare all of your options before choosing the best plan for your needs.

Payroll Deduction IRA

A Payroll Deduction IRA is an individual retirement account (IRA) that is established and funded through payroll deductions from an employee’s paycheck. The funds are then invested in a variety of assets, such as stocks, bonds, and mutual funds.

The main advantage of a Payroll Deduction IRA is that it allows employees to save for retirement on a regular and consistent basis. This can be especially helpful for employees who do not have the discipline to save on their own. Additionally, some employers may offer matching contributions, which can further help to grow the account balance.

The main disadvantage of a Payroll Deduction IRA is that it may not provide enough money to cover all of an employee’s retirement expenses. Additionally, the account balance may be subject to market fluctuations, which can lead to losses.

How To Avoid CalSavers

If you’re an employer, you have a few options for avoiding CalSavers. You can:

  • Opt out of CalSavers altogether
  • Provide your own retirement savings plan that meets certain criteria
  • Do nothing and let your employees automatically enroll in CalSavers (this started July 1, 2020)

If you opt out of CalSavers, you can’t re-enroll your employees later. Employees who are already enrolled in CalSavers when you opt out will be able to continue contributing to their accounts, but no new employees will be able to enroll.

To opt out, you must submit a notice to the CalSavers program administrator within 120 days of your first payroll period. The notice must indicate that you’re opting out and must be signed by an authorized representative of your company.

If you choose to provide your own retirement savings plan, it must:

  • Be a qualified retirement plan under state or federal law
  • Cover all employees who work at least 20 hours per week and have been employed for at least 3 months
  • Allow employees to contribute at least 2% of their pay (5% for highly compensated employees)
  • Make employer contributions that are at least as generous as the CalSavers default contributions

If your company’s retirement plan meets these criteria, you don’t have to do anything else. Your employees will be automatically enrolled in your company’s plan and won’t be able to participate in CalSavers.

If you don’t opt out and you don’t provide a retirement savings plan that meets the criteria above, your employees will be automatically enrolled in CalSavers. Employees can choose to opt out of CalSavers or change their contribution amount at any time.

What Happens if Employees Don’t Want Calsavers?

In short, nothing. If your employees don’t want to participate in Calsavers, they can opt out of the program. However, if they do opt out, they will not be able to contribute to or receive benefits from the program. Additionally, if an employee opts out of Calsavers and then changes their mind, they will not be able to re-enroll in the program until the next open enrollment period. 

Let’s Address Some Common Questions

Is CalSavers mandatory in California?

Yes, CalSavers is mandatory for most employers in California. Employers with 500 or more employees in the state must offer the program to their employees by July 1, 2020. Employers with less than 500 employees must offer the program by July 1, 2021. Employees are automatically enrolled in the program unless they opt out. Employers must make contributions to the program on behalf of their employees, unless the employees elect to make their own contributions.

What Are 3 Types of Employer-Sponsored Retirement Plans?

There are three common types of employer-sponsored retirement plans: 401(k)s, 403(b)s, and 457s. Each type of plan has its own set of rules and regulations.

401(k) plans are the most common type of employer-sponsored retirement plan. They are available to employees of for-profit companies. Employees can contribute pretax dollars to their 401(k) accounts. Employers may also make matching or nonelective contributions to these accounts.

403(b) plans are available to employees of nonprofit organizations and some government agencies. Employees can contribute pretax dollars to their 403(b) accounts. Employers may also make matching or nonelective contributions to these accounts.

457 plans are available to employees of state and local governments, as well as some nonprofit organizations. Employees can contribute pretax dollars to their 457 accounts. Employers may also make matching or nonelective contributions to these accounts.

Are Owners Exempt from CalSavers?

No, owners are not exempt from CalSavers. All employers with five or more employees must offer a retirement savings plan to their employees, including owner-employees. However, there is an exception for certain sole proprietors and business partners who may be exempt from the requirements under federal law.

Is CalSavers a 401k or Roth IRA?

CalSavers is a 401k, but it also allows for Roth IRA contributions.

Can Employers or Business Owners Get Tax Write-Offs for Retirement Contribution Matching?

Yes, employers or business owners can get tax write-offs for retirement contribution matching. This can be a great way to save for retirement while also getting a tax break.

It’s Good to Know Your Options

CalSavers has quickly become one of the most popular retirement savings options for Californians. However, it is not the only option available. There are a number of other retirement savings programs available, each with its own set of benefits and drawbacks. Ultimately, it is up to each individual to decide which program is best for them. 

If you’re a business owner and want to learn more about CalSaver’s, check out our simple guide to CalSavers.  

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.