Not a Member? Get access to HR news and resources that you can trust.
Standing desks and other innovative workstations can help counterbalance the negative health effects of sitting.
Is your employee handbook ready for the New Year? With SHRM’s Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Get the HR education you need without travel expenses or time out of the office.
Elevate Your Talent Strategy. Join us in Chicago, IL – April 24-26, 2017.
Phased-in employer mandate to make payroll deductions won’t start until at least 2018
California employers with at least five employees will eventually have to offer a retirement savings plan or make automatic payroll deposits into a state-sponsored program—but the new mandate won't take effect anytime soon.
The California Secure Choice Retirement Program will require covered private-sector employers that don't already offer a plan—like a 401(k)—to enroll their employees in the program. However, workers who don't want to participate will be able to opt out.
On Sept. 29, Gov. Jerry Brown signed Senate Bill 1234, which authorized the Secure Choice Retirement Savings Investment Board to set up the program.
"The law establishes some broad parameters for the program, but many of the details still need to be worked out," said Alan Cabral, an attorney with Seyfarth Shaw in Los Angeles.
The program will be rolled out in phases, and the employer mandate won't take effect until at least 2018.
The board can't start staffing for the program until Jan. 1, 2017, according to Grant Boyken, the state deputy treasurer. The board will then have to design and launch the program.
After the program is up and running, employers with 100 or more employees will have 12 months to enroll workers. Employers with 50-99 employees will have 24 months, and employers with 5-49 employees will have 36 months.
"Based on these factors, it could be another two to four years or more before an employer has to begin participation in the program," Cabral said.
Boyken noted that the penalty will be $250 per employee per year for covered employers that either don't offer their own retirement savings plan or don't enroll their employees in the state-sponsored program.
The law is expected to impact about 7 million California workers who don't have an employer-sponsored savings plan.
"The program provides for automatic employee enrollment at a 3 percent contribution rate," Cabral explained.
He noted that the board has the authority to drop the base contribution rate to as low as 2 percent or to raise it to as high as 5 percent.
"Once an employee is enrolled, the base contribution rate may be subject to annual increases of no more than 1 percent per year, with a cap of 8 percent," Cabral said.
"Employees can opt out of the automatic increases or opt out of the program altogether," he added.
The new law will protect employers from liability under the program if they act in accordance with the regulations that the board creates.
"The law also expressly provides that employers won't be fiduciaries with respect to the program and won't be liable for benefits, program design or investment performance," Cabral said.
He noted, however, that courts often apply a "facts and circumstances" test to determine fiduciary status. Therefore, it's not clear if there could be circumstances under which an employer might still be considered a fiduciary despite what the law says.
"Since many of the details have yet to be worked out—such as benefit distribution options, withholding and transmittal logistics, and enforcement mechanisms—employers really don't have a complete picture of what the program will entail," Cabral added.
Boyken said employers should know that their role will be limited to disseminating information from the board and setting up a mechanism to deduct and transmit the payroll contributions.
The board's pending regulations, "which have yet to be drafted, will provide further detail on the employer's obligations and will hopefully provide information that will help employers assess whether they want to offer a more traditional retirement plan, such as a 401(k), or whether they want to participate in the Secure Choice program," Cabral said.
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Your session has expired. Please log in again before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Exam Late Application Deadline: April 14
SHRM’s HR Vendor Directory contains over 3,200 companies