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New Retirement Plan Requirements for Certain California Employers

Governor Jerry Brown recently signed legislation approving the California Secure Choice Retirement Program (S.B. 1234) (“Secure Choice”), which provides access to retirement savings accounts (“Secure Choice Accounts”) established and maintained by the state of California for the estimated 7.5 million employees in California that currently do not have access to employer-sponsored retirement plans.  Employees are automatically enrolled in Secure Choice unless they opt out.  Employees enrolled in Secure Choice automatically contribute 3 percent of their annual salary or wages to their Secure Choice Accounts, unless they specify a different contribution rate or opt out.  Private employers that do not offer employer-sponsored plans are required to enable their employees to make these contributions to their Secure Choice Accounts directly from their paycheck.

Effect on Employers

Secure Choice applies only to private employers with five or more employees that do not offer an employer-sponsored retirement plan (“eligible employers”).

Eligible employers are required to perform certain administrative functions in connection with the Secure Choice Accounts.\

  • Eligible employers are required to enable employees to make an automatic contribution from their paycheck to their Secure Choice Accounts.
  • Eligible employers are required to transmit the payroll contributions to a third party administrator.
  • Eligible employers are required to provide their employees with informational materials about Secure Choice, which will be provided to the employers by the state.

Secure Choice limits eligible employers’ liability in connection with the Secure Choice Accounts.

  • Eligible employers do not have any liability for an employee’s decision to participate in or opt out of Secure Choice.
  • Eligible employers are not considered fiduciaries of Secure Choice.
  • Eligible employers bear no responsibility for the administration, investment, or investment performance of Secure Choice.
  • Eligible employers have no civil liability under Secure Choice for acting pursuant to the regulations relating to the roles and responsibilities of employers instituted by the California Secure Choice Retirement Savings Investment Board, which oversees Secure Choice.

Effective Date

Under the legislation, Secure Choice is to be implemented on January 1, 2017.  However, it is likely that implementation will be delayed.

Once Secure Choice opens for enrollment, employers will have between 12 and 36 months to set up the payroll deposit retirement savings arrangement.

  • Within 12 months after Secure Choice opens for enrollment, eligible employers with more than 100 employees must have a payroll deposit retirement savings arrangement in place.
  • Within 24 months after Secure Choice opens for enrollment, eligible employers with more than 50 employees must have a payroll deposit retirement savings arrangement in place.
  • Within 36 months after Secure Choice opens for enrollment, all other eligible employers must have a payroll deposit retirement savings arrangement in place.

The California Secure Choice Retirement Savings Investment Board has discretion to extend these time limits.