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September 2022: California Passes Legislation to Expand Mandated Retirement Plans

14 Sep

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Update Applicable to: 
All employers in the state of California.

What happened?
On August 26, 2022, Governor Newsom signed Senate Bill 1126 (SB 1126), which expands the definition of eligible employer and adds a requirement to employers regarding retirement savings programs.

What are the details? 
In 2016 California passed legislation that employers who do not sponsor an employee retirement plan must participate in a state-run retirement program. This program became known as CalSavers.

While there have been legal challenges to CalSavers, the program persists. CalSavers provides an opportunity for employees to defer wages, through payroll deductions by the employer, to a state-run individual retirement savings account program.

An employer is not required to participate in CalSavers if it sponsors or participates in a retirement plan, such as a 401(k) or pension plan. To be exempt from CalSavers, an employer may sponsor a retirement plan for any of its employees; California employees need not enroll in the retirement plan for the employer to be exempt.

Previously, under the statute, “eligible employer” was defined as a person or entity engaged in a business, industry, profession, trade, or another enterprise in the state, excluding specified federal, state, and local governmental entities with five or more employees and that satisfies certain requirements to establish or participate in a payroll deposit retirement savings arrangement.

SB 1126 expands the definition of eligible employer to include a person or entity, as described above, that has at least one eligible employee, and that satisfies the requirements to establish or participate in a payroll deposit retirement savings arrangement and would additionally exclude from the definition of “eligible employer” sole proprietorships, self-employed individuals, or other business entities that do not employ any individuals other than the owners of the business.

The bill also requires that eligible employers with five or more employees that do not offer a retirement savings program have a payroll deposit saving arrangement to allow employee participation within 36 months after the board opens the program for enrollment. Moreover, by December 31, 2025, all eligible employers with one or more employees would need a payroll deposit savings arrangement if they do not provide a retirement savings program.

For more information, please see the links below:

Senate Bill 1126 (SB 1126)

CalSavers

Article 1 – Article 2

What do employers need to do?
Employers should review the links provided above, review their classifications of employers, and prepare to make adjustments to their retirement and payroll deposit savings arrangements to ensure that they will comply with the law.

Need help understanding how changes to employment laws will affect your business?

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This communication is intended solely for the purpose of conveying information. The present post might incorporate hyperlinks directing readers to websites managed by third-party entities. The inclusion of any links within this communication is meant to serve as points of reference and could encompass opinion articles from various law firms, articles from HR associations, official websites, news releases, and documents of government agencies, and other relevant third-party sources. Vensure has no authority over these external websites and bears no responsibility for their content. Furthermore, Vensure does not endorse the materials present on these websites. The contents of this communication should not be interpreted as legal advice or as a legal standpoint concerning specific facts or scenarios. Nor should it be deemed an exhaustive compilation of facts potentially pertinent to federal, state, or local laws. It is strongly advised that employers solicit legal guidance from an employment attorney when undertaking actions in response to any legal updates provided. This is due to the possibility of future alterations occurring in federal, state, and local laws, regulations, as well as the directives and guidelines issued by governing agencies. These changes may transpire at any given time, potentially rendering certain portions of the content within this update void or inaccurate.

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