How CA Law SB1126 Impacts Businesses
If you run a small business in California, and have even ONE employee, you are required to offer a retirement savings plan by the end of 2025. The penalty for non-compliance, per Government Code Section 100033(b), could be up to $500/employee.
SB1126 was signed by Gov Newsom in 2022, and will automatically enroll you and your employees in the state run CalSavers retirement plan if you don't set up your own qualified plan, like a 401k.
What's wrong with CalSavers?
1) $7,000 annual contribution cap since it is an IRA. Compared to $23,000 for 401k plans.
2) Income limit of $140k to participate. If you accidently contribute to CalSavers and are over the income limit, you may face taxes and penalties. However, 401(k) plans aren’t subject to the same income restrictions.
3) Very limited investment options. CalSavers only offers a few target date funds, an ESG fund, 2 stock funds, and a core bond fund.
4) Administrative headaches. As the employer, you are required to withhold the appropriate amount of employees’ wages and deposit it into CalSavers on their behalf.
5) No tax breaks for employers who use CalSavers. If you start a 401k plan, you can receive up to $15k in tax credits to reduce the start-up costs. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits. If you pay for plan expenses like administrative fees, you may also be able to claim them as a business tax deduction.
What's the alternative?
You can easily setup a low cost 401k plan at many banks & custodians. Axis Capital has helped small businesses in California setup their own 401k plan, complete the paperwork, and help navigate their investment options. As a flat-fee advisor, I don't charge a %AUM fee on the retirement assets held by you or your employees. We keep costs low so your money can work for you in your retirement account.
If you are a small business owner that needs to setup a 401k, but don't know where to begin, click here to Book A Meeting.
