Three Things Employers Should Know About Retirement Savings Plans

When you think about the employee benefits offered by top tech firms, what comes to mind? Free snacks, game rooms, and stock options? In the competition for highly-skilled employees, do you see many job candidates asking about your retirement savings program?

It is not uncommon for tech startups to skimp on retirement savings plans, on the assumption that their younger-than-average employees have other priorities. In addition, setting up a 401(k) program may seemingly involve too much administrative hassle and expense for a small business owner. On the other hand, employers play a valuable role in educating workers about important matters like health care and financial planning.

So, what should a Silicon Valley business owner do? Here are a few things going on in the arena of retirement savings that California employers should be aware of:

Supporting Retirement Savings Is Socially Responsible

Businesses will find themselves under increasing governmental pressure to encourage their employees to save for retirement, so as to reduce reliance on the Social Security system as the sole source of income in retirement. Two driving factors stressing the Social Security system are increasing lifespans (more years in retirement) and the steady decline in the worker-to-retiree ratio. This ratio has fallen from 3.4 workers-per-beneficiary in 1990 to 2.9 in 2010, and it is projected to decline further to 2.3 by 2030.

California to Offer Auto-IRA Plans to Small Business Employees

Several states, including California, are addressing this issue by building their own programs to encourage retirement savings, focusing on small businesses that do not offer 401(k) or pension plans. Under the CalSavers program (formerly Secure Choice), which is expected to roll out in 2019, employees will be able to contribute to an IRA account via payroll deductions. Businesses that do not offer another retirement plan and that have at least five employees would be required to enroll their employees in the CalSavers program, although employees would have the option to opt out. Employers would not make matching contributions to these IRAs the way they often do with 401(k) plans; they would only be facilitating the payroll deduction process. The standard federal rules and contribution limits for IRAs will apply to these state-run auto-IRA programs.

Watch the Expenses on 401(k) Plans

One caveat for firms that do offer a 401(k) plan: keep an eye on the plan’s administrative costs. A wave of lawsuits have been filed against large employers in the past few years, alleging that the investment options available to employees are burdened by excessive expenses that erode investor returns.

Consult an Experienced San Jose Business Law Attorney

Do you need to attract and retain high-demand employees by offering a competitive salary-and-benefits package? Are you concerned about running afoul of federal or state laws? An experienced Silicon Valley business lawyer can help. Call SAC Attorneys LLP at (408) 436-0789 to schedule a free consultation to discuss how we can help you keep your business growing while minimizing your legal risks.

Sources:

• Worker-to-Beneficiary Ratio in the Social Security Program
• California on verge of creating retirement plan for private-sector workers
• Allianz agrees to settle 401(k) fee lawsuit for $12 million