January 13, 2015

Are Employers Required to Offer Retirement Plans? (Article)

There appears to be a bit of a trend to require private sector employers to offer, or at least facilitate, retirement plans for their workforce.  Currently, California and Illinois have enacted laws centering on this concept and are in the process of forming and implementing their programs.  Several other states are exploring the possibility of requiring private sector employers to facilitate a retirement savings option for their employees.


California began the trend by enacting a law in 2012 establishing the California Secure Choice Retirement Savings Program.  Under this Program, a private sector employer employing five or more employees would be required to deduct 3% of participating employees' wages and deposit the funds into government-run investment accounts. Employees would be automatically enrolled in the program, unless they opt out of participating. 


Before this Program can begin, however, the appointed Program’s Investment Board is charged with conducting an analysis to determine whether the legal and practical conditions for implementation of the law can be met.  A part in the process involves a request for proposals from entities to perform a market analysis, a feasibility study, and program design consultant services.  According to the Board’s agenda, these exploratory services should begin later next month. 


Last week, Governor Pat Quinn signed the Illinois Secure Choice Savings Program Act into law (SB 2758; now Public Act 98-1150).  Illinois now becomes the second state to require private sector employers who do not otherwise offer a retirement plan to provide a payroll deduction option to individual retirement plans. 


Under this program, an employer employing 25 or more employees that has been in business for at least two years and does not offer a retirement plan would be required establish a 3% payroll deduction process wherein employee contributions are deposited into a Roth IRA.  The employee would have the right to opt out, or opt for another deduction percentage.  The law does not require employer contributions.  Employers already offering a retirement plan cannot participate. 


Like California, much water must pass under the bridge before the program becomes functional.    First, the state must appoint an investment board to oversee the program.  It must then obtain affirmation from the Internal Revenue Service that the retirement program will be tax-favored.  Then, the state must obtain affirmation from the Department of Labor that the program will not cause the employer to become the sponsor of an ERISA plan.  In other words, this law is not intended to create a plan subject to ERISA.


MyRA.  On the federal front, President Obama directed the Treasury Department to develop a new Roth IRA-type plan option for employers of any size who do not currently offer a retirement plan.  In this “myRA” program, an employer would set up a payroll direct deposit process for employees to make contributions to their myRA accounts if they choose to participate. 


Contribution and Income Thresholds

An employee can to open a myRA account with an initial deposit of $25 and elect an amount (minimum of $5 per paycheck) to be automatically deposited into their account. 

For 2015, the maximum amount that an individual can contribute toward all traditional and Roth IRAs, including his/her myRA account, is the lesser of:

  •  $5,500 ($6,500 if the individual is aged 50 or older by the end of the year); or
  • The individual’s taxable compensation for the year. 

The maximum amount of contribution an individual can make depends upon the individual’s modified adjusted gross income (AGI) and tax filing status for the year.  Following are the 2015 income threshold limits:


Tax filing status

Income Threshold

· Married filing jointly

· Qualifying widow(er)

Phase-out income point begins when modified AGI reaches $183,000. No contributions allowed once income exceeds $193,000

· Single

· Head of household

· Married filing separately and no longer living with spouse during the year

Phase out income point begins when modified AGI is $116,000. No contributions allowed once income exceeds $131,000


Married, filing separately and living with spouse during the year

If modified AGI at least $10,000, cannot make any myRA contributions for the year


An employer is not required to administer these accounts, contribute to them, nor match employee contributions. 


Upon a request by the Treasury Department, the Department of Labor recently opined that the nature and characteristics of this program would not be deemed to be employer-sponsored; and thus, the program would be exempt from the reporting, disclosure, fiduciary duty, or other requirements of Title I of ERISA. 


More information about this program, including program materials that could be shared with employees is available on the Treasury Department’s dedicated webpage (https://myra.treasury.gov/).
The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.

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