Recently, California Senate has enacted two bills, 923 and 1234, which establish a framework for a state-sponsored retirement plan for private-sector employees who are not covered by a company-sponsored retirement plan. The California Secure Choice Retirement Savings Trust (CSCRST) however is still far from being ready for rollout. The State legislature first needs to enact another statute to fully implement the program.
This move is not unique, however, and is consistent with the direction of the current administration to encourage Americans to take better responsibility for their retirement futures. Other states have joined in: Wisconsin lawmakers are expected to introduce a very similar proposal soon. Eleven other states including Connecticut, Illinois, Maryland, Massachusetts, Michigan, Pennsylvania, Rhode Island, Vermont, Virginia, Washington and West Virginia have proposed the idea of a state-run retirement plan for employees of private companies who are not covered by a company retirement plan.
This development, unfortunately, has contributed to rumors of the federal attempt to take over the private retirement system. For you, this spells out an important opportunity to educate, remove the noise, and assist small employers to establish a voluntary retirement plan which will advantage them from tax and retirement accumulation perspectives while fulfilling the requirement and exempting these employers from the mandatory plan requirement. Here are quick facts about the California’s plan:
What it is?
CSCRST is a mandatory, IRA-based, payroll deduction plan akin to today’s payroll deduction IRA. This plan, however, will not be voluntary and failure to participate by a business without an alternative plan will lead to a fine.
Who will be required to have the plan?
Private employers, for-profit or non-profit, with five or more employees that do not have a company-sponsored retirement plan.
Who must be covered?
All eligible employees will be automatically enrolled into the plan, unless they affirmatively opt-out of the plan.
What’s the contribution limit?
Limit will match the maximum annual traditional IRA limit. As a reference, IRA limits for 2013 are $5,500 or $6,500 for those 50 years of age or older.
Who Will Run the Plan?
The plan will be run by a nine-member board determined by the state. The board will create an investment policy statement with the primary objective of preserving the safety of principal and providing a stable and low-risk rate of return. It will also determine investment options to achieve those objectives.
Who will invest plan assets?
The trustee would invest the assets under direction of the board.
Your First Allied Retirement Services subject matter experts are ready to assist and answer any questions regarding this important development. We will assist with a discovery meeting, proposal preparation and presentation. Call us at (888) 926-0600 or send a message to firstname.lastname@example.org .