Excluded Clases and CalSavers Retirement Savings Trust Act

[Fibonacci]

If a client has a qualified plan (whether it be 401(k) plan or not) and they exclude a majority of their employees by class does this plan still satisfy the CalSavers requirement?

[Peter Gulia]

Here’s the statute, California Secure Choice Retirement Savings Trust Act, compiled as California Government Code §§ 100000 to 100050.

https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=GOV&division=&title=21.&part=&chapter=&article=

Section 100032(h)(1): “An employer that provides an employer-sponsored retirement plan, such as a defined benefit plan or a 401(k), Simplified Employee Pension (SEP) plan, or Savings Incentive Match Plan for Employees (SIMPLE) plan, or that offers an automatic enrollment payroll deduction IRA, shall be exempt from the requirements of the CalSavers Retirement Savings Program, if the plan or IRA qualifies for favorable federal income tax treatment under the federal Internal Revenue Code.”

To interpret that paragraph, the board’s regulations state:

“Tax-Qualified Retirement Plan” means a retirement plan that qualifies for favorable federal income tax treatment under Sections 401(a), 401(k), 403(a), 403(b), 408(k), or 408(p) of Title 26 of the United States Code. An employer-provided payroll deduction IRA program that does not provide for automatic enrollment is not a Tax-Qualified Retirement Plan.”

Also:

“Exempt Employer” means an Employer that . . . (ii) maintains or contributes to a Tax-Qualified Retirement Plan[.]

https://www.treasurer.ca.gov/calsavers/regulations/final-regulations.pdf

How confident are you that the plan, despite exclusions, meets all Internal Revenue Code conditions for tax-qualified treatment?

This is not advice to anyone.
 

[Jesse C]

Just wondering your thoughts on an employer establishing a SEP IRA with a discretionary formula and then electing a zero contribution every year.   I have found nothing in the regulations or CA code that states the employer must contribute to the plan.   As you noted, "(ii) maintains or contributes to a Tax-Qualified Retirement Plan"

Seems like this could be a loophole to the CalSavers program that any employer could exploit.  

[Peter Gulia]

An employer might want its expert lawyer’s advice about:

whether the California board that administers California’s law would accept or reject such an interpretation of the statute and its implementing regulations; and

whether California’s Supreme Court would adopt the employer’s view as the correct interpretation of the statute.

Yet, getting written advice an employer could rely on to defend its good-faith belief that it need not provide the CalSavers wage-deduction facility might be more expensive than merely falling in with the CalSavers regime.

This is not advice to anyone.