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Can Small Businesses Solve the Retirement Crisis?

By George Khoury, Esq. on October 05, 2016 | Last updated on March 21, 2019

California is paving a new way for employers to help with the retirement crisis using the new California Secure Choice Retirement Plan. This is a state sponsored retirement account for the employees of small businesses that traditionally could not afford to provide employees with a retirement plan. The plan, which Governor Jerry Brown has signed into law, will allow millions of Californians to start saving toward their retirement. If others states follow California's lead, Fortune notes, this type of plan could help alleviate the retirement crisis in the US.

The California program provides access for private sector employees of small businesses (with 5 or more employees) with the opportunity to participate in low-risk, low cost, portable retirement saving and investment plans. The program also requires that employers provide automatic enrollment, as well as direct payroll deductions.

What If You Already Have a Retirement Plan for Your Employees?

For the 7.5 million Californians working for employers that do not have a retirement plan or savings/investment account, this new legislation will help to provide those workers with security for their retirement. If you already have a retirement saving/investment plan set up for your employees, then you'll be happy to hear that the new program is not mandatory for employers that already provide a plan. However, even if you do have a plan, employers may wish to transition to the new plan as it does not place employers in the role of fiduciaries for their employees' retirement accounts, as some types of employer provided retirement plans do.

In a survey conducted by the AARP and Small Business Majority, 73% of small business owners responded that the program would provide their business with a competitive edge in retaining/hiring employees. Additionally, the Secure Choice program is also portable, meaning that your employees are able to take the plan with them if they quit, are terminated, or laid off.

How Does Secure Choice Benefit Employees?

Employees that did not have access to retirement savings or investment accounts will now have access through this program. Participating employers will automatically enroll all employees at a 3% contribution, which the employee can change or terminate at any time.

Opponents of the new law claim that employees will be upset by the automatic enrollment. They also claim that employees prefer to take home their full pay if they are not ready to start saving for their retirement. Despite the opposition, it is now the law. However, note that your employees can opt-out.

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