California passes law to expand pension plan’s mandate

In 2016, California passed a law stipulating that employers who do not sponsor an employee retirement plan must participate in a state-run retirement program. This program became known as CalSavers.

Although there have been legal challenges against CalSavers, the program persists. CalSavers offers employees the ability to defer their wages, through employer payroll deductions, to a state-run Individual Retirement Savings Account program.

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

Previously, under the law, “eligible employer” was defined as a person or entity engaged in any business, industry, profession, trade or other business in the state, excluding entities federal, state, and specified local governments with five or more employees. and who meets certain requirements to establish or participate in a payroll deposit retirement savings arrangement.

On August 26, Governor Gavin Newsom signed Senate Bill (SB) 1126, which expands the definition of qualifying employer to include a person or entity, as described above, that has at least one qualifying employee. and who meets the requirements to establish or participate in a payroll-deposited retirement savings arrangement, and would further exclude from the definition of “eligible employer” sole proprietorships, self-employed individuals or other business entities that do not employ no one other than the owners of the business.

In addition, the bill requires eligible employers with five or more employees who do not offer a retirement savings program to have a payroll savings-deposit arrangement to allow employees to participate in the program within 36 months after the board initiates the enrollment program.

In addition, by December 31, 2025, all eligible employers with one or more employees will be required to have a payroll deposit savings arrangement, if they do not offer a retirement savings program.

Donald P. Sullivan is an attorney with Jackson Lewis in San Francisco. © 2022. All rights reserved. Reprinted with permission.

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