California Employers with 1 or more employees are required by Law to offer a qualified Retirement Plan

By Brad Stephens, Tamalpais Asset Management
 
Changing Environment for Retirement Savings
 
As of 2024, employers with one or more employees are currently required by law to either offer their own qualified retirement plan or register for CalSavers. The CalSavers Retirement Savings Trust Act was enacted by the state of California in 2016 to address a gap in retirement savings options for many private-sector workers. Its goal is to make retirement savings more accessible to California workers.


 
 
 










There is a Retirement Savings Crisis in the US today
 
The traditional American retirement model is in poor health. Once supported by pensions, Social Security, and 401(k)s, it now faces significant challenges. Pensions, which used to cover nearly half of private sector workers in the 1980s, are now accessible to only 15%. Social Security remains crucial for a significant number of older adults, but its long-term solvency is threatened. Without action, the trust fund could be exhausted by the mid-2030s, potentially reducing future retiree benefits. This leaves the 401(k), which, while available to 68% of private sector employees, is utilized by only half. This shift highlights the growing reliance on savings by individuals.
 
While most larger firms have workplace retirement plans, only 24 percent of small businesses offer one. Low retirement savings has contributed to an approximately $11 Trillion shortfall in savings.
 
I in 3 Americans Has $0 Saved for Retirement
 
Benefits of Offering Retirement Plans
Retirement plans are a powerful tool for businesses, offering numerous advantages to both employers and employees. Here's a closer look at the key benefits:
 
Benefits for Owners

• Retirement Savings: Business owners can participate in the retirement plan they offer, contributing to their own financial security.
• Tax Benefits: Owners can also reap the tax advantages associated with retirement plan contributions, both through deductions and tax-deferred growth.
• Attracting Key Employees: Offering a retirement plan can be a valuable tool for attracting and retaining key employees, particularly for small businesses where attracting top talent can be challenging.

• Traditional 401(k) – Tax-Deductible Contributions: Employer contributions to retirement plans are often tax-deductible, reducing the company's tax burden.
• Traditional 401(k) – Tax-Deferred Growth: The money within a retirement plan typically grows tax-deferred, meaning employees don't pay taxes on investment earnings until they withdraw funds in retirement.
• Roth 401(k) – Tax Free Withdrawals: Qualified withdrawals in retirement are entirely tax-free. This means you won't owe any taxes on your investment gains or contributions, regardless of how much your account has grown.
• Roth 401(k) – Tax Diversification: Provides tax diversification in your retirement portfolio. By having both pre-tax (traditional 401(k)) and post-tax (Roth 401(k)) accounts, you can manage your tax liability in retirement by strategically choosing which account to withdraw from based on your income and tax bracket.
• Tax Credits: Certain types of plans, particularly those designed for small businesses, may be eligible for tax credits, further reducing costs.