Earlier this year, the Federal Government announced that the United States is in a retirement crisis. State governments, specifically California, Oregon, and Illinois are getting involved in retirement programs because nearing a 1 in 4 Americans do not have money saved for retirement. One study done by Northwestern Mutual in 2018 determined approximately 10% have less than $5,000 saved. Fifty percent of Californians are expected to retire in poverty.
The laws that have been passed in these states require all employers (sometimes depending on the number of employees) to sign up for a state-run program—CalSavers of OregonSavers—or, offer a retirement savings plan sponsored by the company—401(k) of SEP-IRA.
For employers that choose the CalSavers program, employees are automatically enrolled unless they opt-out within 30 days of being notified about the program. Once enrolled, contributions are deducted from the employee’s paycheck, after-tax, into a Roth IRA (Individual Retirement Account). Because these are individualized accounts, employees have the option of being able to move the accounts when they change jobs but are limited to the amount they can contribute.
As of 2019 and as a comparison, Roth IRAs are limited $6,000; whereas 401(k)s are limited to $19,000. This is not to say that one is better than the other, but investors need to be mindful of the cost this may have to an investment strategy.
Regardless, deadlines are quickly approaching that will require employers to offer a retirement plan for employees. Deadlines for CalSavers and OregonSavers are:
- Employers with >100 employees
- Employers with >50 employees
- Employers with >5 employees
- Employers with >10 employees
- Employers with 5-9 employees
- Employers with 0-4 employees
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