California: Employers Required to Offer State-Run Retirement Fund to Employees


All Private Employers with at least five California Employees


Varies; see below


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(888) 378-2456

SB 1234 will require all California private employers with at least five employees, who do not offer their own retirement plan, to enroll their workers into the state-run California Secure Choice Retirement Savings Program, which will operate like a 401(k).  The retirement fund will be overseen by a state board and administered by private companies that have not yet been selected.  Employees are expected to be able to enroll and start investing money in 2018.

There will be a phase in period for applicable employers.  Eligible employers with more than 100 employees will be mandated to participate within 12 months after the program is open for enrollment; employers with more than 50 employees will be mandated to participate within 24 months after the program is open for enrollment; and within 36 months all other eligible employers will be required to participate.  However, any employer may voluntarily choose to allow participation in the program once it is open for enrollment.

Employers will be required to automatically contribute 3% of employee wages to a third party administrator of the program.  Employees will have the option to contribute more or opt out entirely.  Employers will also be required to provided state development informational materials about the program to employees.  The savings program account is also tied to the employee, not the company, so the account will move with the worker if they change jobs.  Employers are not currently able to contribute to the plan, based on existing ERISA requirements.

According to the California Secure Choice website, there are employer safeguards.  Specifically, employers will not have any liability for an employee’s decision to participate in (or opt out of) the program, for the investment decisions of participating employees, or for the program design, investment returns, or benefits paid to participating employees.  Employers will not be a fiduciary of the program, and will not bear responsibility for the administration, investment, or investment performance of the program.

California is not the only state to approve such state-run retirement plans, though it is the first to launch the plan.  Connecticut, Illinois, Maryland and Oregon have also passed laws to create state-run programs, with Maryland’s plan set to begin in 2018.  California’s plan is expected to provide retirement planning for nearly 7 million Californians.

Action Items

  1. Review information about the program on the California Secure Choice Retirement Savings website here.
  2. Subscribers can call our HR On-Call Hotline at (888) 378-2456 for further assistance.

Disclaimer: This document is designed to provide general information and guidance concerning employment-related issues. It is presented with the understanding that ManagEase is not engaged in rendering any legal opinions. If a legal opinion is needed, please contact the services of your own legal adviser.

© 2016 ManagEase, Incorporated.

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