Small Business 401(K) Specialist Offers Guidance to Business Owners
SANDY, Utah, June 1, 2022 /PRNewswire-PRWeb/ — 401GO, a pioneer in the investment space that provides small businesses with the opportunity to offer employees a 401(k) program, today issued guidance to small and mid-sized businesses (SMBs) in California who have just 30 days to comply with the state’s new CalSavers retirement savings program. The program makes having a qualified retirement plan mandatory for organizations with five or more employees.
Employees working within organizations who fit this criteria, of which there are about 7.5 million according to the Government Accountability Office, currently have until June 30th to register for CalSavers. As this deadline looms, 401GO CEO Dan Beck, is issuing advice to SMBs who may be unaware of what exactly this mandate means for their company and their employees.
“On the most basic level, CalSavers does exactly what it aims to do: it makes it possible for companies that do not already have ERISA qualified retirement funds to offer employees a retirement plan option with no cost or liability to the employer,” said Beck, before adding that some concerning issues rise to the surface when you look deeper into the program. Since it’s essentially a payroll-deduction Roth IRA plan, he says it’s subject to federal rules that employees may not realize.
“For example, there is a maximum contribution amount of $6,000 per year, which to someone that makes $120,000 a year is less than 5% of their income,” Beck added. “This means if the employee is auto-enrolled at the default 5%, they will find themselves in trouble with the federal government when they contribute too much to their account. The same problem applies to those who have additional private IRAs. The contribution maximum does not allow for $6,000 per IRA, only $6,000 per contributor. So if an employee is already contributing $4,000 to a privately held IRA, they would only be able to contribute an additional $2,000 to their CalSavers account or face extra taxation.”
In addition to the concerns outlined above, Beck highlighted several other concerns which are summarized below:
- Auto-enrollment: Employees from employers who have joined the program will be enrolled in CalSavers automatically. This increases the burden on employers to communicate with staff, including non-English speakers, about their enrollment as well as provide them with the information they need to know how to opt-out.
- Earnings & fees: CalSavers offers limited investment choices, and those without investment experience may struggle to understand their options. For example, CalSavers’ default fund is a money market fund that aims to yield 0%. This means that it’s designed not to lose money, and the result is that it typically doesn’t make money.
- Government involvement: While the state of California has mandated this retirement program, the implementation and management are subcontracted to the lowest bidder, in this case, Ascensus. For business owners, this means finding a way to cooperate with a large corporation that is paid by the state.
“I fear that opting into CalSavers may be a lost opportunity for employers and their employees,” warned Beck. “There are better alternatives that allow employees to more effectively grow their personal wealth, including 401(k) plans that allow employers to match employee contributions, which CalSavers prohibits.
He added: “Instead, I would encourage SMBs to consider offering employees the opportunity to achieve greater financial freedom through privately-offered retirement plans. Not only do these options give employers and employees solid tax advantages, but there’s a huge range of investment options to choose from that offer more direct control of accounts.”
Less than half of those employed by small businesses have access to a 401(k) or pension. Companies with small budgets who want 401(k) plans have been ignored or even laughed at by 401(k) providers. 401GO was founded to provide working Americans and small businesses greater financial freedom through inexpensive and worry-free work-sponsored retirement plans. Setup takes just minutes (not weeks!), pricing is economical at $9/participant, and 401GO handles all the details. With its innovative automated technology, a simple, affordable, and beneficial 401(k) plan is finally practical for small businesses. For more information visit https://www.401go.com.