California Employers Facing State Mandated Retirement Program
So far it has remained under the radar, but a major new State government program is rapidly heading towards a collision course with private employers in California. The California Secure Choice Act is a program that states private employers must offer a retirement plan to their employees or the employer will be forced to participate in a new retirement program mandated by the State of California.
California employers with five or more employees must comply with the mandate or face heavy penalties if they do not. Critics of the state program, including myself, have identified numerous issues small and large that plague the offering. My personal opinion is employers face significant potential risk (based on the current version of the regulations (5/22/2016). Further, the program in my opinion, falls short on providing an optimal solution for employees as well. The program design is flawed and incomplete leaving many questions unanswered.
Currently, Secure Choice is on track for a 2017 debut, but could slip into 2018. However, make no mistake about it, this program is coming soon. And even if you do offer a retirement plan to your employees that may not exempt you from the mandate. The State is working on rules that would mandate coverage for part-time or contract workers that are excluded from your existing plan.
There is a much simpler solution for employers to avoid the California Secure Choice Act. Employers can offer a payroll deduction IRA program to their employees without cost or personal liability to the business or its owners. Payroll deduction IRAs have been around for decades and work very well for employers of any size. You can provide your employees with a simple and effective way to save for retirement without cost to you.
I am very concerned that the California Secure Choice Savings Program will turn out to be the equivalent of the Affordable Care Act (ACA) for retirement plans. You can avoid the headaches and the uncertainty by offering a private solution today.
You can listen to more about the California Secure Choice Act in segments three and four of my show this week.
In segments one and two of the program, I discuss the flaw of retirement planning that focuses on building wealth instead of a stream of income for retirement.
It was one of those shows when I covered a lot of ground in a short amount of time. It started with my boredom over the Super Bowl week being dominated by footballs with slightly lower pressure. From there it was a quick discussion about the Croatian Super Bowl connection (my most popular blog post ever) and then a quick look at the California DMV and its quick turnaround concerning commercial plate requirements for ride sharing vehicles.
From there, we spent time discussing, 529 College Savings Plans and the President’s proposal to phase them out. By the way, he must have been listening… two days later he withdrew the proposal. From there it was off to a big picture discussion about tax revenue and spending habits in Washington. Look out folks, those pesky folks in Washington DC may be after your ROTH IRA accounts too!
The bottom line is simply a mathematical problem. The easy tax revenues for government have already been accessed. Now it appears that government is going to have to learn to budget better or more wisely in the future. It will become harder and harder to add new programs or significant spending without raising taxes on the middle class. It will be hard to go after more of the middle classes’ income, so the likely targets are their savings. And the ROTH accounts have a bulls-eye on them right now.
Finally, a short segment on my daughter Rachel and her experience at the giant home show. Grandma gave her $20 to spend and she learned several lessons on her own as she dealt with the concept of limited money and so many choices to spend it on.
As a parent, it was great to watch her grow as she came to grips with the idea of spending. Rachel learned how to budget for the day and limit her spending. I only wish it was that easy for Washington DC to curb its spending habits. Or maybe they can just learn to spend it more wisely!