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How small businesses are coping with California’s expanded worker retirement savings requirement

Save. It’s a four-letter word, one which companies throughout California are legally required to encourage their employees to do in the name of retirement.

Nearly all companies in California have incrementally been a part of their employees' retirement planning either by offering workers a retirement savings plan or by participating in the state-run CalSavers program.

And as of June 30, the law expanded to those with at least five employees. Some North Bay companies have opted to go with CalSavers, while others have had 401(k) plans as a longstanding benefit.

The mandate for retirement plans by employers came about because people were reaching retirement age without sufficient money to do so. Some experts describe the state of retirement funding in the U.S. as a “crisis.”

“More people are entering retirement with debt, with more people having mortgages and credit card debt,” according to Richard Johnson, director of program on retirement policy at the Urban Institute, a think tank that carries out economic and social policy research.

This means retirement savings are having to be allocated for those expenses.

He also pointed to the rising cost of Medicare, that employer health care may disappear before Medicare begins, and the fact employer provided pensions are no longer the norm.

“For the coming generations the retirement outlook is pretty grim,” Johnson told the Business Journal. “We project that 38% of the people born between 1973 and 1990 will have inadequate retirement income at age 70 to maintain preretirement living standards or to meet their basic needs. By comparison, those born between 1946 and 1954 it was only 28%.”

Part of the discrepancy, he said, has to do with the age requirement increasing to receive full Social Security compensation. Those born in 1960 or later must wait until age 67 to receive the maximum benefit. For people turning 62 this year, the first year they can receive Social Security, they are receiving 70% of their full benefit by not waiting until age 67.

Companies doing their part

This past summer, Sonoma Springs Brewing Company launched a 401(k) plan for its 11 employees. The owners chose a national financial services company with an office in the North Bay.

“I did it because I thought having a financial adviser from an established brokerage firm offer advice to our employees on retirement plan strategies was better than the state-run program that does not offer that ancillary service,” Robert Raney, one of the owners of the Sonoma brewery, told the Journal. “Furthermore, we get more fund choices through our own 401(k) than what CalSavers does.”

Raney did not reveal what it cost to start up and run the retirement program for his business, but did say it was lower than when he first looked into it a few years ago. Employees asking for the benefit and the state deadline pushed him to make the decision.

Inn Above Tide in Sausalito has offered a 401(k) plan to its 25 employees for nearly three decades.

“It is a great benefit. I think when we first initiated it, it was quite rare,“ General Manager Mark Flaherty said. The Marin County hotelier said initially it was a great recruiting tool because, at the time, few others in the industry had a retirement plan.

Even though the participation rate is at about 50%, Flaherty said, “I think the 401(k) does help people to think about planning and future goals.”

He said answers vary as to why people don’t participate. “It may be the nature of business, of the service sector,” adding that these works sometimes don’t plan as far in advance.

Summit State Bank based in Santa Rosa also believes its plan is “good for attracting top talent.”

Amy Wakayama, director of human resources, said the bank has a 94% participation rate from employees who are eligible for its 401(k) plan.

“We have a pretty high percentage because of the high percentage match and then we also have auto enrollment,” Wakayama told the Journal. “Because it is banking I think people are a little bit more savvy about benefits.”

Like Summit State Bank, Far Niente Family of Wineries and Vineyards did not reveal how much of it provide to "match" the amount an employee puts in to the retirement fund.

The wine group has had a retirement saving plan in place for several years. Of its 156 full-time employees, approximately 85% participate at some level.

The winery group offers a 401(k) as well as profit sharing. The savings plan is structured to automatically increase the employee contribution on an annual basis.

“Auto escalation means that each July, the employee contribution increases by 1%. The logic being that when an employee gets an increase in compensation there is encouragement to increase their retirement savings,” Julie Secviar, vice president of human resources, told the Journal. “The auto escalation and the auto enrollment can both be opted out of.”

The Far Niente portfolio consists of Far Niente in Oakville, Nickel & Nickel in Oakville, EnRoute in Sebastopol, Bella Union in Rutherford, Post & Beam in Oakville, and Dolce in Oakville.

Rather than a 401k, Mitchell Law Group in Benicia opted to go with state CalSavers for its lone employee. The attorneys who work for the firm are independent contractors.

Angie Grilho, the office manager who is in CalSavers, has had money automatically taken out of her paycheck and put into the savings plan for about a year. She likes that she doesn’t have to do anything; that everything is automated.

While Marin Shakespeare Company in San Rafael has used CalSavers for more than a year, it has not been as smooth for the nonprofit as it has been for the law firm.

“We are a small nonprofit theater company and we only have a few full-time employees so we never had a retirement program. When CalSavers came about we were required to participate in it,” Lesley Currier, managing director of the Marin County outfit, said. “It’s a lot of work to let people know they need to opt out. Sometimes for hourly or seasonal employees it does not make sense to participate because they don't make lot of money and they would not want it to go to a retirement program they would not see for a long time.”

Today, the theater group has four full-time workers, but has more than 100 seasonal employees throughout the year.

Currier called CalSavers “frustrating” and said it has been “a steep learning curve” to manage it.

She believes if people could opt in instead of having to opt out of CalSavers, that it would be easier for the company as well as employees.

County Registered employers Non-responsive employers
Sonoma 1,653 421
Napa 479 158
Marin 852 248
Solano 759 250
Total 3,743 1,077
North Bay employers with retirement plans not incompliance as of June 30, 2022 (Source: CalSavers)

CalSavers to the rescue

Officials with the state plan say automatic enrollment in CalSavers was designed on purpose in order to get people to save without having to do anything. The contribution taken out of each person’s paycheck starts at 5%. Participants can change it to range from 1% to 100% as long as the amount doesn’t exceed federal contribution limits, which in most cases is $20,500.

County Number of penalized businesses
Alameda 8
Calaveras 1
Contra Costa 2
El Dorado 2
Fresno 11
Imperial 6
Kern 14
Kings 1
Los Angeles 72
Madera 4
Marin 1
Merced 3
Monterey 8
Napa 1
Orange 27
Placer 1
Riverside 16
Sacramento 8
San Bernardino 17
San Diego 18
San Francisco 6
San Joaquin 7
San Luis Obispo 1
San Mateo 1
Santa Barbara 9
Santa Clara 8
Santa Cruz 1
Solano 3
Sonoma 1
Stanislaus 5
Tulare 16
Ventura 7
Yolo 3
Out of state 69
Statewide total 358
California employers penalized for out-of-compliance retirement plans (Source: CalSavers)

Employees have five savings options to choose from—a target retirement fund, sustainable balanced fund, core bond fund, global equity fund, or a money market fund.

“We are not permitted to give investment advice to participants. We work with professional investment consultants and investment management firms to provide a carefully selected high quality set of options for our participants,” explained Katie Selenski, executive director of CalSavers. “The default investment option is a suite of age-based target retirement date funds where the investment allocation is automatically determined based on the person’s birthdate and automatically adjusts over the years to shift from more aggressive to more conservative holdings. The vast majority of our participants are sticking with that default option.”

Companies with more than 100 employees had until Sept. 30, 2020, to join CalSavers or create another retirement savings plan for employees. The deadline for companies with more than 50 workers to do the same was June 30, 2021, while those with five or more employees had until June 30, 2022, to become compliant.

CalSavers does not charge employers anything to set up the plan or to participate. Startup costs for a 401(k) with a brokerage firm vary, but be a couple thousand dollars.

Employees using CalSavers pay a fee ranging between 0.825% and 0.95% of their account balance. In other words, annually people will pay between 83 and 95 cents for every $100 in their account. It’s dependent on the person’s investment choice.

“We have a total of 108,000 registered employers. We have 350,000 funded accounts, plus hundreds of thousands more recently established accounts that have yet to have their first contribution,” Selenski told the Journal in September. “The program tripled the number of employers in the few months leading up to the recent employer compliance deadline on June 30, and we expect to see fast growth in the number of funded accounts as those employers complete their onboarding phase and move into full facilitation of payroll deductions.”

Not all companies have complied with the state mandate. Of the 358 companies that have been sent penalty notices, their compliance deadline was in 2020, according to Selenski. She said more notices will be sent next year.

Los Reyes Restaurant y Cantina in Vacaville with its 60 employees has yet to receive a letter from the state even though it is non-compliant. The restaurant’s deadline was in June 2021.

“The company doesn’t have anything,” General Manager Jyka Bacud said of retirement savings plans. “I believe the owner is trying to work on something.”

Penalties for not complying start at $250 per employee and go to $500 per worker if the issue continues. Employers are fined if they remain out of compliance 90 days after being notified by the state. The additional penalty is applied if compliance is not met in another 90 days.

What the experts see

Whether there is a retirement crisis depends on who answers the question.

John Mackey, senior vice president and managing director of investment and fiduciary services for Exchange Bank Trust & Investment Management in Santa Rosa, said, “It’s not a crisis.”

He believes people are in better shape than they think because most can work well beyond 60, which was once thought to be the normal retirement age; and he says people tend to spend less when they retire, so they don’t need as much money as they do while working.

Whether people are prepared for retirement depends on who answers the question.

George McCuen, president of Napa Wealth Management, acknowledges that people are continuing to work longer, not always in their profession, but doing something to bring in a few bucks that then also provides them with an activity.

Financial advisors point to how the sooner people start saving, the better off they will be—even in times like this when the stock market is so volatile.

“The best way to save for retirement is put savings on autopilot. That is what a employers’ savings plan does,” Johnson with the Urban Institute said.

He added, “The fact that almost half of all jobs are not covered by a retirement plan is problematic. For those people who don't have a retirement plan the vast majority are not saving at all for retirement.”

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