As of January 1st, 2023, employees in California whose employers do not offer retirement plans now have access to an optional retirement savings plan. This plan will be a state-facilitated retirement savings program through the Colorado SecureSavings Program. The Colorado SecureSavings provides businesses with a convenient way to help their employees save for their future. If you’re a business owner who:
- Has been in business for two or more years
- Has five or more employees
- Does not have a retirement savings plan in place
You are now required by law to offer a retirement savings plan. Should you fail to provide your employees with one of these plans, you will face hefty fines levied by the state of Colorado.
Who Qualifies For This Program?
Any employee who is at least 18 years of age and has earned wages in Colorado for at least 180 days is eligible and automatically enrolled in the program. Employees will have 30 days following the enrollment date to opt-out or customize their contribution amounts, investment options, and beneficiaries. Suppose your employees choose not to opt out within this 30-day time frame. In that case, they will automatically have five percent of their compensation withheld on an after-tax basis and contributed to a Roth Individual Account (Roth IRA). A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. In addition, every January, contributions will automatically increase by one percent up to a maximum of eight percent unless the employee adjusts it.
Should an employee not make an election on how their Roth IRA is to be invested, it will automatically be invested in the Capital Preservation Option. Capital preservation refers to an investment strategy where the main objective is to preserve capital and avoid losses in an investment portfolio. In utilizing this strategy, investments typically comprise the safest short-term investment products, including fixed deposits and bonds. It will then be transferred to the Target Retirement Date Option with a target date closest to the employee’s expected year of retirement.
What You Should Know As A Business Owner In Colorado
As with any law, as a business owner, you must know what every law entails and how it affects you, your business, and your employees. With this new law in Colorado, you will face hefty penalties if you don’t comply. It’s essential that you understand the following components of the law:
- If you don’t sponsor a retirement savings plan for your employees, you must provide your payroll vendor’s name, payroll schedule, company bank information, contact information, and employee roster
- Employees will then be automatically enrolled in the SecureSavings program
- Employees hired after the date of registration must be enrolled in the SecureSavings program within 180 days of their hire date
- You must update participating employees’ contribution rates within your payroll system
- Contributions must begin with the payroll immediately after the 30-day opt-out period has passed
- You must keep employee rosters and payroll contribution information updated
- You are prohibited from setting up or managing employees’ accounts, managing investment options, or answering questions about the program
- You are not permitted to provide any tax, legal, or other financial advice
- Your employees will receive a Form 5498 directly from the trustee of the program no later than May 31st every year
Save Yourself The Headache, Partner With GMS
We understand that staying on top of, yet another law is a lot to take on. You wear many hats as a business owner and don’t have the time or money to manage every aspect of your business. When you hand off the administrative burdens of your business to GMS, you can finally focus on what you do best – growing your business. GMS helps with profit sharing and 401(k)s for small businesses. In serving as the plan’s co-sponsor, PEOs can leverage group buying power to reduce plan costs for small businesses and take on the fiduciary burden to ensure you remain compliant with your 401(k). We can help you set up fully customizable retirement savings plans that make your company more attractive to quality employees. When you partner with GMS, you can easily establish the following:
- 401(k) eligibility requirements
- Vesting schedules
- Tax-deductible matching
- Profit-sharing contributions
Check this off your to-do list for the week. Contact us today to learn more.