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California is Quick to Act on DOL's Approval of State-Run Retirement Plans

Posted by Corey F. Schechter | Oct 27, 2016 | 0 Comments

Commencing January 1, 2017, employees working for private-sector employers located in California that do not currently offer their employees participation in an employer-sponsored qualified retirement plan will have the opportunity to participate in the California Secure Choice Retirement Savings Program (the “Program”). The Program, which was recently signed into law by the Governor (click here for text of Senate Bill 1234), is a state-led effort to increase retirement savings and was facilitated by the DOL's recent approval of such state-run programs in a final rule promulgated in August 2016. The new Program in California is applicable only to “eligible employers” – meaning, non-governmental employers with five or more employees. There is also a phase-in period for eligible employers to comply with the Program based on their number of employees. Eligible employers with more than 100 employees must comply with the Program within 12 months of enrollment opening, while eligible employers with more than 50 employees will have 24 months. All other eligible employers will have 36 months.

One of the central aspects of the new Program is its automatic enrollment feature intended to increase participation. Employees of eligible employers will be automatically enrolled in the Program, but will have the opportunity to opt out of participation. When automatically enrolled in the Program, employees will have a set amount of pay withheld and contributed to the Program – initially, 3% of pay. This default contribution amount may increase from year-to-year. However, an employee enrolled in the Program will be able to elect to increase or decrease the amount of their contribution for any given year.

The penalties for an eligible employer's failure to meet the Program's compliance requirements are still uncertain. If you are an “eligible employer” under the Program and have been considering adopting a qualified retirement plan for your business, now is the perfect time to establish that plan. Doing so will allow you to design a plan best-tailored to fit your specific needs, while also avoiding any burdensome requirements associated with employer-compliance under the new Program.

About the Author

Corey F. Schechter

Corey Schechter practices in the areas of Employee Benefits, Employee Stock Ownership Plans, Pension and Profit Sharing Plans, ERISA, ERISA Litigation, Business Law, Qualified Domestic Relations Orders (QDROs), and Employment and Labor Law.

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