Retirement Policy

Pros and Cons of CalSavers for Small Businesses Answers to frequently asked questions about the CalSavers Retirement Savings Program If you’re an employer in California with 5 or more employees, you must offer the CalSavers Retirement Savings Program—or another retirement plan such as a 401(k). Faced with this decision, you may be asking yourself: Which is the best plan for my employees? To help you make an informed decision, we’ve provided answers to frequently asked questions about CalSavers: 1. Do I have to offer my employees CalSavers? No. California laws require businesses with 5 or more employees to offer retirement benefits, but you don’t have to elect CalSavers. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is CalSavers? CalSavers is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, if you don’t offer a retirement plan, you must automatically enroll your employees into a state IRA savings program. Specifically, the CalSavers plan requires employers with at least five employees to automatically enroll employees at a 5% deferral rate with automatic annual increases of 1%, up to a maximum contribution rate of 8%. As an eligible employer, you must withhold the appropriate percentage of employees’ wages and deposit it into the CalSavers Roth IRA on their behalf. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider CalSavers? CalSavers is a simple, straightforward way to help your employees save for retirement. CalSavers is administered by a private-sector financial services firm and overseen by a public board chaired by the State Treasurer. As an employer, your role is limited to uploading employee information to CalSavers and submitting employee contributions via payroll deduction. Plus, there are no fees for employers to offer CalSavers, and employers are not fiduciaries of the program. 4. Are there any downsides to CalSavers? Yes, there are factors that may make CalSavers less appealing than other retirement plans. Here are some important considerations: CalSavers is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in CalSavers. For example, single filers with modified adjusted gross incomes of more than $140,000 would not be eligible to contribute. If they mistakenly contribute to CalSavers—and then find out they’re ineligible—they must correct their error or potentially face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions. CalSavers is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—CalSavers only offers after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) So even if employees max out their contribution to CalSavers, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, CalSaver does not. Limited investment options—CalSavers offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer CalSavers; however, employees do pay $0.83-$0.95 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have lower employee fees. Fees are a big consideration because they can erode employee savings over time. 5. Why should I consider a 401(k) plan instead of CalSavers? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also likely have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contributions limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with CalSavers, that means more employer savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that CalSavers is most appropriate for your company, visit the CalSavers website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.

SECURE Act 2.0: Getting Closer to Reality SECURE Act 2.0 would expand retirement plan coverage and make it easier for employers to offer retirement plan benefits. The Securing a Strong Retirement Act, or ‘SECURE Act 2.0’ as it is commonly called, came much closer to being realized with the House passing the bill by a wide margin, 414-5, on March 29, 2022. This comes almost a full year after the House Ways and Means Committee unanimously approved the bill. The bill has been sent to the Senate, who approved their own version on June 22, 2022, as the EARN Act. Once the bipartisan bill has been finalized, it will be sent to the President for signature. SECURE 2.0 builds on the SECURE (Setting Every Community Up for Retirement Enhancement) Act of 2019, which expanded retirement coverage to more Americans. In addition, the new bill includes several provisions designed to ease retirement plan administration which should encourage more employers to adopt 401(k) plans. Please keep in mind that nothing has been finalized as of September 15, 2022.  Key provisions of SECURE Act 2.0 related to 401(k) plans include: Expansion of automatic enrollment. Requires new 401(k) plans to automatically enroll employees at a default rate between 3% and 10% and automatically escalate contributions at 1% per year to at least 10% (but no more than 15%). Of course, employees can always change their contribution rate or opt out of the plan at any time. Existing plans are grandfathered, and new businesses as well as those with 10 or fewer employees are exempt. Enhanced tax credits for small employer plans. The SECURE Act provides businesses with fewer than 100 employees a three-year tax credit for up to 50% of plan start-up costs. The new bill increases the credit to up to 100% of the costs for employers with up to 50 employees. In addition, SECURE Act 2.0 offers a new tax credit to employers with 50 or fewer employees, encouraging direct contributions to employees. This new tax credit would be as much as $1,000 per participating employee. Increased age for required minimum distributions (RMDs) to 75. The SECURE Act increased the RMD age to 72 (from 70.5). The new bill increases the RMD age even further: to 73 in 2023; 74 in 2030 and ultimately 75 in 2033. Higher catch-up limits. Catch-up contributions mean older Americans can make increased contributions to their retirement accounts. Under current law, participants who are 50 or older can contribute an additional $6,500 to their 401(k) plans in 2022. The new bill increases these limits to $10,000 for 401(k) participants at ages 62, 63, and 64. Catch-up contributions must be made in Roth. Currently, participants can choose whether to contribute pre-tax or Roth as their catch-up contributions. The new bill requires that all catch-up contributions be made in Roth moving forward. This will provide less tax diversification for participants but will generate more tax revenue to help offset the cost of some of the other provisions in the bill. Ability to match on student loans. Heavy student debt burdens prevent many employees from saving for retirement, often preventing them from earning valuable matching contributions. Under this provision of the bill, student loan repayments could count as elective deferrals, and qualify for 401(k) matching contributions from their employer. The bill would also permit a plan to test these employees separately for compliance purposes. Ability to contribute matching contributions in Roth dollars. Currently, all employer matching contributions must be made on a pre-tax basis. The bill proposes that employers would be allowed to offer matching contributions to participants on a Roth basis. Roth matching contributions would not be deductible for employers as pre-tax contributions are, but may provide beneficial tax benefits to employees. Additional incentives for employees to contribute. The only way an employer can currently incentivize employees to contribute to their 401(k) plan is through an employer match. The bill proposes that employers could now offer additional incentives, such as a small gift card benefit, to employees who contribute to their 401(k). One-year reduction in period of service requirements for long-term part time workers. The 2019 SECURE Act requires employers to allow long-term part-time workers to participate in the 401(k) plan if they work 500-999 hours consecutively for 3 years. The new bill reduces the requirement to 2 years. Keep in mind that plans with the normal 1000 hours in 12 months eligibility requirement for part-time employees must allow participants who meet that requirement to enter the plan. Retroactive first year elective deferrals for sole proprietors. Thanks to the SECURE Act, employers can retroactively establish a profit sharing plan for the previous year up until their business tax deadline. This allows the owner to receive profit sharing for the previous year without having to make any employee deferrals. SECURE Act 2.0 extends the retroactive rule to sole proprietors or single member LLCs, where only one owner is employed. For example, a sole proprietor owner would have until April 15, 2023 to allocate profit sharing and elective deferrals for the 2022 plan year. Penalty-free withdrawals in case of domestic abuse. The new bill allows domestic abuse survivors to withdraw the lesser of $10,000 or 50% of their 401(k) account, without being subject to the 10% early withdrawal penalty. In addition, they would have the ability to pay the money back over 3 years. Expansion of Employee Plans Compliance Resolution System (EPCRs). To ease the burdens associated with retirement plan administration, this new legislation would expand the current corrections system to allow for more self-corrected errors and exemptions from plan disqualification. Separate application of top heavy rules covering excludable employees. SECURE 2.0 should make annual nondiscrimination testing a bit easier by allowing plans to separate out certain groups of employees from top heavy testing. Separating out groups of employees is already allowed on ADP, ACP and coverage testing. Eliminating unnecessary plan requirements related to unenrolled participants. Currently, plans are required to send numerous notices to all eligible plan participants. The new legislation eliminates certain notice requirements. Retirement savings lost and found - SECURE Act 2.0 would create a national, online lost and found database. So-called “missing participants'' are often either unresponsive or unaware of 401(k) plan funds that are rightfully theirs.

Pros and Cons of the New York State Secure Choice Savings Program Answers to small businesses' frequently asked questions The New York State Secure Choice Savings Program was established to help private-sector workers in the state who have no access to a workplace retirement savings plan. Originally enacted as a voluntary program in 2018, Gov. Kathy Hochul signed a law on Oct. 22, 2021, that requires all employees of qualified businesses be automatically enrolled in the state's Secure Choice Savings Program. If you’re an employer in New York, state laws require you to offer the Secure Choice Savings Program if you: Had 10 or more employees during the entire prior calendar year Have been in business for at least two years Have not offered a qualified retirement plan during prior two years If you’re wondering whether the Secure Choice Savings Program is the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees the Secure Choice Savings Program? No. State laws require businesses with 10 or more employees to offer retirement benefits, but you don’t have to elect the Secure Choice Savings Program if you provide a 401(k) plan (or another type of employer-sponsored retirement program). 2. What is the Secure Choice Savings Program? The Secure Choice Savings Program is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, if you don’t offer a retirement plan, you must automatically enroll your employees into a state IRA savings program. Specifically, the New York plan requires employers to automatically enroll employees at a 3% deferral rate. As an eligible employer, you must set up the payroll deduction process and remit participating employee contributions to the Secure Choice Savings Program provider. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider the Secure Choice Savings Program? The Secure Choice Savings Program is a simple, straightforward way to help your employees save for retirement. According to SHRM, it is managed by the program’s board, which is responsible for selecting the investment options. The state pays the administrative costs associated with the program until it has enough assets to cover those costs itself. When that happens, any costs will be paid out of the money in the program’s fund. 4. Are there any downsides to the Secure Choice Savings Program? Yes, there are factors that may make the Secure Choice Savings Program less appealing than other retirement plans. Here are some important considerations: The Secure Choice Savings Program is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate. For example, single filers with modified adjusted gross incomes of more than $144,000, as of 2022, would not be eligible to contribute. If they mistakenly contribute to the Secure Choice Savings Program—and then find out they’re ineligible—they must correct their error or potentially face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions. New York Secure Choice is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—Illinois only offers after-tax contributions to a Roth IRA. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—Employees may save up to $6,000 in an IRA in 2022 ($7,000 if they’re age 50 or older), while in a 401(k) plan employees may save up to $20,500 in 2022 ($27,000 if they’re age 50 or older). So even if employees max out their contribution to the Secure Choice Savings Program, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, the Secure Choice Savings Program does not. Limited investment options—Secure Choice Savings Program offers a relatively limited selection of investments. 5. Why should I consider a 401(k) plan instead of the Secure Choice Savings Program? For many employers—even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over the course of three years. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision. Saving power—Thanks to the higher contributions limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with New York Secure Choice that means more employer savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers expert-built, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that New York’s Secure Choice Savings Program is most appropriate for your company, visit the New York Secure Choice website to learn more.  If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running —and aim to simplify ongoing plan administration. Plus, our fees are at one of the lowest costs in the industry. That can mean more value for your company—and more savings for your employees. Get started now.