Audience: Resources for Employers

5 Things You Need to Know Before CalSavers’ June Deadline

Posted on April 26, 2022 by - Retirement Benefits

If you’re an employer of California residents, you’re probably keenly aware of the June 30th CalSavers deadline. It might have you scrambling to set up your workplace retirement savings plan, or maybe you’re ahead of the curve and already have a plan in place. Either way, there are 5 things you need to know as this all-important date approaches.

1. The CalSavers deadline most likely applies to you. Over the past couple of years, the state of California has been gradually lowering the employee threshold at which it requires employers to offer a workplace retirement plan. If you have more than 100 employees, your deadline was September 2020; more than 50 employees, your deadline was June 2021 and now, if you have 5 or more California employees, your deadline to offer a retirement savings plan to your people is June 30th of this year. The mandate applies as long as at least one of your employees is 18 years of age or older

2. CalSavers is only for California-based employees. If you are one of the many companies that saw their workforce scatter during the pandemic, you have a choice to make. You can set up state-based retirement savings plans in every state in which you both have employees and one is available and required. Or, you can find a singular solution in the private market, like Icon.

3. There are financial penalties for not complying with the June CalSavers deadline. If you haven’t set up a workplace retirement savings plan for your California employees within 90 days of the June 30th deadline, you will be assessed a fine of $250 per eligible California employee. If you still haven’t enrolled your company in a plan by 180 days after the June deadline, you will be assessed an additional $500 per eligible employee.

California employees are considered eligible if they are: 1) Age 18 or older and 2) considered an employee under California law. The number of hours worked per week or their tenure is not a factor into their eligibility. You must upload all employee information to the CalSavers website within 30 days of their start date. Employees will then be automatically enrolled in the program if they do not opt out within 30 days thereafter.

While California law doesn’t require that you offer a workplace retirement plan to 1099 workers, Icon’s savings plan gives you that ability. With Icon, all workers, regardless of status, have the opportunity to save for retirement through automatic payroll deductions

4. CalSavers accounts have default settings that may not benefit all employees. 

  • The default account type is a Roth IRA. The default account type for CalSavers accounts is a Roth IRA which carries with it income limits based on tax filing status. In 2022, those limits are: $214,000 for a married couple filing jointly and $144,000 for single filers. If account holders earn above the income limit, they aren’t eligible to contribute to a Roth IRA and if they do so, they will have to unwind their contributions. 

Account holders pay income taxes on Roth IRA contributions (although they don’t pay income taxes on the distributions they take later). 

Account holders have the option to change their account type to a Traditional IRA, but they must take it upon themselves to do so.

  • The default savings rate is 5%. Unless account holders designate a different contribution rate, 5% of their paycheck will be automatically deposited into their CalSavers account. Some workers may not be able to afford a 5% contribution and will thus be unpleasantly surprised if they’re not made aware of this default setting.
  • Employees are automatically enrolled in the CalSavers retirement plan. California law states that employers must automatically enroll all eligible employees in the CalSavers program (if that’s the company’s chosen retirement plan). Employees must then take it upon themselves to opt-out if they don’t want to participate. This could leave some employees feeling like it’s a hassle to manage their account or it could take them by surprise should they either forget to opt-out.

5. Think a private market retirement savings program is a better fit for your company? You can un-enroll your company from CalSavers. If you signed up for CalSavers ahead of the June 30 deadline but you now see you have better options, you can unenroll from the program. You just need to contact CalSavers directly and they can help you through the process.  

Icon is helping small and mid-sized companies to both comply with California law and offer their employees an easy and inexpensive way to save for retirement. The initial set-up for both employers and employees takes minutes, then Icon takes care of the rest. We handle employee education, investment management, communication with your payroll service, and we carry the fiduciary responsibility to the employees so all you have to do is upload employee information and approve their contributions. Icon is the easiest, quickest, and most affordable way to comply with the California June 30th deadline.

Why Don’t 81 Million Americans Have A Retirement Plan?

Posted on March 30, 2022 by - Retirement Benefits

The retirement industry is complicated, outdated, and serves a workforce that no longer exists. Originally created to replace the pension system, the 401k was intended to provide employees who worked for the same company, for the majority of their career, a way to save for retirement.

But, in the forty-plus years since 401k plans were created, the workforce has changed in dramatic ways. Today, people are mobile and will have an average of 12 jobs throughout their career. Many companies are also making a strategic shift toward keeping their workforce independent contractors as a way to keep costs down. These shifts in the workforce require a parallel shift in how people access retirement plans.

Or else we’ll all pay the price.

The Harrowing Stats

  • Almost 36% of Americans have never had a retirement account. Not because they don’t want one, but because most of them don’t have access to a workplace retirement plan (e.g., a 401k). This problem is going to get worse as more and more people choose to work for themselves and/or become independent contractors. In fact, 86.5 million workers are predicted to be self-employed by 2027 (Statista). None of whom is eligible to contribute to a 401k.
  • In 2020 there were 147.79 million people employed in the U.S. and only 60 million of those participated in a 401k. That’s 40% of the workforce.
  • About 50% of women and 47% of men aged 55 to 66 have no personal retirement savings. 
  • Only 22% of women have $100,000 in savings or more, which is worrisome when healthcare alone is expected to cost the average 65 year old $300,000 in retirement.
  • The annual contribution limit for an IRA (the only type of retirement savings vehicle available to everyone, regardless of their type of employment) is $6,000 (an additional $1,000 is allowed for those age 55 and older). Compare this to the $20,500 limit for 401ks for 2022 (with a $6,500 catch-up allowed for 55 older), and you see that even if these workers open their own retirement savings account, it’s difficult for them to save the amount they’ll need for retirement.  

The current system that relies on 401ks as the preferred vehicle for retirement savings isn’t working.

What Makes 401ks Outdated for the Modern Workforce?

Lack of portability. The 401k is set up and sponsored by the employer, which means once someone leaves the company, they’re no longer eligible to contribute to their plan. They must either roll their previous employer’s plan into a new one (which could be costly, if it’s even allowed), manage multiple plans, abandon the account, or cash out.

Today, people spend between 2 and 8 years at a job , which means that 15 million people change jobs each year. That’s 15 million people who are forced to make potentially damaging decisions about their financial future because of the way the 401k is structured.  

Unfair eligibility leaves a lot of people out. The 401k system is restrictive when it comes to who is qualified to participate. Typically, to “qualify” for a 401k, you must be a full-time employee who has worked for your employer for a certain time period. If you’re a part-time employee you’re only eligible to participate if you book between 500 and 999 hours with your employer over a consecutive two-year period. If you’re an independent contractor, you’re not eligible at all. Even if you work 40 hours a week or more for the company.

If you’re an employer, surprise, you’re a fiduciary. Over the past decade, several high-profile lawsuits have brought an increased level of attention to employer’s legal responsibilities in offering 401k plans. This is because employers become fiduciaries when they sponsor plans. They are responsible for ensuring the plans are fair, managed in the best interests of plan participants and in compliance with ERISA guidelines. Even if the 401k provider takes on some fiduciary responsibilities, the employer always remains a fiduciary, as well.

Due to these liabilities, risks, and costs, many employers would like to remove themselves from the responsibility of being a fiduciary to their employees’ retirement savings.

Antiquated technology. Much of the technology the 401k industry uses is shockingly outdated. This is worrisome. These behemoth systems create massive inefficiencies that result in high fees that are passed on to plan participants, which erodes their life savings. In addition, outdated technology makes the process of saving cumbersome and out-of-step with other consumer experiences. Today’s customers expect products to be easy to use, accessible, personalized, and fairly priced.

Fees, fees, and more fees. Today, high fees are costing people billions of dollars in lost savings. This is especially true for those who work for small to medium companies. Sadly, smaller companies pay much higher 401k fees because they don’t have the negotiating leverage of larger companies.

The Solution is Portable Retirement.

The last decade has brought rapid innovation to banking, payment processing, and systems integration. These new technologies provide the components required to build an alternative retirement savings architecture that serves the needs of the evolving workforce.

Beyond technology, there are other design and product features required for a modern retirement savings plan including: low (transparent) fees, high quality funds, universal accessibility, holistic financial education, and support with personal finances.

Icon. The modern retirement plan.

Built by industry experts in behavioral finance, technology, and design thinking, Icon is an entirely new approach.

Icon eliminates the regulations, costs, and risks for employers, and completely redefines the employer’s role. Icon is the simplest way to offer a retirement plan.

It gives people the freedom and flexibility to save in a low-cost, easy-to-use, tax-deferred savings plan. And, unlike a 401k plan, there are no limits on who can use it. Everyone qualifies: full-time, part-time, independent contractors, gig workers.

And for the millions who work for themselves, Icon can help them achieve financial security through a structured, self-directed, and flexible retirement savings plan.

The Easiest Way to Offer a Retirement Plan

Posted on March 23, 2022 by - Retirement Benefits

If you’re reading this article it’s probably because you’ve tried to offer a 401k retirement plan and found it to be complicated, confusing, and expensive. With a payroll IRA, small and medium businesses now have an easy way to offer their employees a retirement savings plan without the cost, risk, and complexity of a 401k. No matter what your setup, whether you have all W2 employees, all 1099 workers or a mixture of both, a payroll IRA is the easiest way to offer the people on your payroll a retirement savings plan.

Payroll IRAs are Easy to Set-up and Administer

With a payroll IRA, employers get a “plug-and-play” retirement benefits solution that’s low cost, low risk and, because of its utilization of new technology, incredibly easy to use for employees and employers alike. Icon is a full service, payroll IRA with live customer support, employer and employee onboarding, employee communication, and an easy-to-use dashboard. 

With Icon, employers complete minimal paperwork for initial plan set-up and then you send us your payroll information and we take care of the rest. This includes:

  • Employee onboarding and education, 
  • Communication with your payroll service, 
  • Plan management, and 
  • Employee removal upon departure from the company.

Once you’ve activated your plan, your employees choose whether or not they want to participate and how much they want to contribute (up to the annual maximum). The only thing you have to do as the employer is approve employees’ contribution amounts.

Payroll IRAs Solve 3 Big Benefits Problems for Employers 

First, a payroll IRA satisfies the need to offer all employees a retirement benefit. There’s no need to distinguish between different employee classes or to figure out vesting schedules, because all employees are eligible to participate in a payroll IRA and they’re immediately 100% vested. 

Second, it allows employers to offer a retirement benefit without the cost and risk of carrying a 401k plan. With Icon’s payroll deduction IRA, we maintain the fiduciary liability of managing the plan, there are no annual reporting requirements, and no ERISA or nondiscrimination rules to worry about. Icon charges a flat monthly fee based on your company size. Icon is so much more affordable than a 401k plan because we leverage new technology to keep our costs down. The 401k industry is still very paper-intensive and requires a lot of manual plan management, so they tend to charge employers and employees a lot more for their services.

Third, employers have more flexibility in terms of how you reward employees for saving. Instead of a complicated formula used in 401k plans, you can have full discretion on what you give your employees (if anything) through a financial wellness bonus.

Retirement Plan Matching Isn’t Always What it Seems

Posted on February 10, 2022 by - Retirement Benefits

You want to attract the best talent possible and you want to keep your current employees happy, so you put together the best compensation package you can. You might think a 401k with employer matching is an essential part of that package. But it turns out a financial wellness bonus might be more attractive (and beneficial) to your workforce. Here’s why.  

What is Employer Retirement Contribution Matching?

Employer retirement contribution matching is when an employer offers to match employees’ retirement plan contributions up to a certain percentage of their annual salary. Employer matching can be structured differently at different companies but here are the three most common ways it functions:

  1. Simple Match. With simple matching, the employer matches employee contributions up to a fixed percentage of the employees’ annual salary. Example: Employer matches 50% of employees’ contributions up to 6% of their annual salary, meaning the employer will contribute a maximum of 3% of the employees’ annual salary each year.
  2. Tiered Match Formula. If you offer this type of matching structure, you match different levels of contributions at different rates. For example, you might match 100% of employees contributions up to 4% of their salary and then match 50% of their contributions up to the next 2% of their salary (for a total max matched contribution amount of 5% of their annual salary).
  3. Max Dollar Match. In this type of structure, employers match employees’ contributions up to a certain dollar threshold. For example, an employer might match 50% of employee contributions up to $1,000.

A less common employer retirement plan contribution structure is a blanket contribution to employees’ accounts regardless of employee contribution activity. Meaning, every employee would get the same retirement plan contribution from the company (this might be a dollar amount or percentage of annual salary) regardless of whether or not they contributed even $1 of their own money.

The Pros and Cons of  Employer Retirement Plan Matching

Pro #1: Employees tend to save more. 

A recent study conducted by Brightscope and the Investment Company Institute (ICI) found that employees whose employers offered at least some level of contribution matching, ended up contributing more of their own money to their retirement account. The more money people save, the greater the employer match, and the faster those savings grow over time. 

Pro #2: It can be a good recruiting tool. The general perception of retirement plan contribution matching is positive (people see it as “free money”), so employers can use this benefit to attract and retain talent. If the matching is on a vesting schedule, this can also incentivize employees to stay at the company longer than they might normally in order to leave with 100% of their employer-contributed savings.

Con #1: Employer contributions might not be available to employees right away. Many employers require employees to work for the company for a year before they’re eligible for contribution matching. If employer contributions are on a vesting schedule, then employees don’t fully own said contributions until the vesting is complete. That means if your vesting schedule is five years, every year an employee works for the company they own an additional 20% of the employer contributions. So if they stay with the company for two years, 40% of their company’s contributions are “released” into their 401k upon their departure. 

Con #2: Employer matching can lead to a lack of portability of retirement savings. As we said above, employees whose employers offer retirement plan contribution matching tend to save more. Which is great. However, 401k savings aren’t portable. So when an employee leaves the company, they no longer have the ability to contribute to the account. They must either roll it over to a new retirement account (and the fees for doing so could wipe out any gains made), leave it where it is and keep track of it along with any other accounts they have, or cash it out and pay a hefty penalty. 

Con #3: It can reduce employers’ flexibility when it comes to compensation. When employers put together their 401k plan, they must announce their intended employee contribution matching structure. This structure must be the same for all eligible employees. That means employers have limited flexibility in terms of the types of compensation they can offer employees and the way they reward good work product and valuable contributions to the company.

How Icon can Help Solve the Problems with Employer Retirement Plan Matching 

Icon’s retirement plan is a payroll IRA meaning contributions are made through payroll. So by offering an Icon plan instead of a 401k, employers make it easy for employees to save while solving the portability problem.

As a reward for contributing to their account, employers can offer matching in the form of a “financial wellness” bonus. This is actually a more popular form of compensation as 55% of current 401k participants would rather have a cash bonus as opposed to employer matching.

Whether you’re weighing the benefits of employer retirement plan matching as an employer or as a current or potential employee, it’s important to consider all aspects of the 401k before making your decision.