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.”