Small employers that do not offer a qualified retirement plan — which most do not — have to sign up for the state's CalSavers IRA plan by June 30.
Most of the other types of retirement plans can enable workers to build their savings faster with the help of contributions from their employers. But they tend to be more costly and complex for employers than CalSavers, and may carry some liability risks.
Financial industry experts say the paperwork, compliance burdens and liability risks of 401 plans have deterred many small employers, as have the costs imposed by the major investment houses that have been supplying those plans. In recent years, though, technology-driven financial firms have designed more automated, lower-cost 401 plans aimed at small businesses.
The credit helps slash the administrative costs of the 401 plans offered by many of the new entrants. Although their models vary, they typically charge employers a flat fee per month plus a fee per worker enrolled, while collecting a small percentage of the amount saved in the worker’s account. That splits the cost between employer and worker without putting much of a drag on workers’ accounts.
Selenski of CalSavers said the median income of the California workers who don’t have a retirement plan today is estimated at less than $30,000. For these workers, hitting the maximum IRA contribution would be a stretch. Employers who aren’t interested in 401 plans but want an alternative to CalSavers have a number of other choices for IRA plans.
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