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KHLS Legal Update

Retirement Benefit Requirement
&
New LA Minimum Wage

 

What You Need to Know:
Employers with 5 or more California-based employees are expected to provide retirement benefits to all employees (including part-time) through CalSavers, or another provider, by June 30, 2022.  Additionally, the new minimum wage rate for the Los Angeles metropolitan area will be $16.04 effective July 1, 2022.

Recommended Actions:

  • If you are a Los Angeles employer, or have Los Angeles-based employees, review your hourly wage rates and ensure they are at least $16.04 per hour effective July 1, 2022.
  • Ensure that you have a retirement plan in place by June 30, 2022.  You can sign up for a retirement plan through CalSavers or another qualified retirement plan through another provider.  Kat Rogers (Kat.Rogers@primerica.com), an Investment Advisor Representative, can refer you to an ESRP.
  • If you already offer a qualified retirement plan (refer to the list below in the “Details” section), you must inform the state of your exemption from registering for CalSavers through the CalSavers Employer Portal.


The Details: (About the Retirement Plan Requirement)
The California Employment Development Department (EDD) is requiring all employers with five or more California-based employees to provide both part-time and full-time employees with a retirement plan effective June 30, 2022.  Employers can choose to provide retirement benefits through the CalSavers program (a state-sponsored retirement savings program) or through another provider that offers a qualified retirement plan, also called an employer-sponsored retirement plan (ESRP).
 
About CalSavers:

  • Gives employers an easy way to help their employees save for retirement, with no employer fees, no fiduciary liability, and minimal employer responsibilities.
  • Gives workers access to a Roth IRA via payroll deductions (with a $6000 annual contribution limit, and an additional $1000 in catch-up contributions for those over 50).
  • There are no up-front fees and it has asset-based fees of .825% to .95%.
  • Employees are automatically enrolled through their employer but may opt out if they choose.
  • Unless the employee chooses otherwise, the plan’s default investment option directs the first $1000 of contributions into a money market fund. All subsequent contributions default into a target date fund based on the qualified employee’s birthdate.
  • The default contribution is 5%, with an annual 1% automatic increase up to 8%. 
Qualified retirement plans (ESRPs other than CalSavers):
  • 401(a) – Qualified Plan (including profit-sharing plans and defined benefit plans).
  • 401(k) plans (including multiple employer plans or pooled employer plans).
  • 403(a) - Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan.
  • 408(k) - Simplified Employee Pension (SEP) plans.
  • 408(p) - Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan.
  • Payroll deduction IRAs with automatic enrollment.
About offering an ESRP through another provider:
  • Can allow an employer to offer a retirement plan with a little more than what CalSavers offers.
  • Gives the highly-compensated executives personal tax deductions in the form of salary deferral.
  • Allows employers to match a portion of employee contributions as an employee benefit. Matching contributions are considered a business expense to the employer and are deductible.
  • Helps employers attract quality employees and build employee loyalty.
  • Allows employees to contribute more to retirement than a Roth IRA permits with investment fees and expenses that are standard for the industry.
  • Some providers may also offer financial wellness workshops and support to employees.
 

Important links:

About the KHLS Legal Update:
As part of a new feature and free service, we will be sharing important legal and human resources updates related to issues that may impact our clients and colleagues.
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