Legislatures breaking the backs of California businesses

November 5, 2012

Joe Schimandle

OPINION By JOE SCHIMANDLE CPA

I was not aware of Senate Bill 1234 until after it was passed in Sacramento and was signed by the Governor. So after becoming aware of it, I just spent some time reading the entire bill.

Basically, the bill requires workers in private businesses with five or more employees to contribute a mandated 3 percent of their wages to a government managed pension plan.

Employees can “opt-out” of participation in the plan. However, they proactively must complete and file a provided form to do so. If they do not submit the opt-out form, their employer must withhold from their wages and remit the amount to the State.

Employers are not required to contribute into the retirement fund (yet). This is a strictly employee-funded retirement savings plan. However, I assume employers will be required to administrate the participation of their employees.

In any case, I started thinking about what the effect will be on employers. As the owner of a small business, I will have to:

(1) familiarize myself with the rules and regulations with which I will be required to comply and stay current with future changes to the system,

(2) disseminate information to employees so they can register in the system,

(3) probably try to explain the program to them (does this create liability on my part?),

(4) transmit their participation forms or opt-out forms to the state,

(5) withhold from their paychecks every payroll,

(6) send the withheld amounts to the state every payroll along with some kind of transmittal form to be created and updated for every mailing,

(7) learn and set up systems in my office to comply with electronic transmission of employee money if that requirement is placed in service,

(8) monitor employee opt-out elections every two years, and ultimately

(9) wait until the state tells me that I must match my employee’s savings contributions. Then if I screw up somewhere along the line, I face penalties of up to $500 per employee.

The fact that the state will administer the investment of ultimately billions of dollars of private workers’ retirement savings is a totally different matter that I do not have time to get into here. I’m busy running a private business…

Don’t you just love it?

So there you go. The progressives in our legislature are breaking the back of businesses in California. They just keep dreaming up new regulations that swamp small firms in paperwork and compliance issues. And almost every provision has fiscal penalties for non-compliance – a very unfriendly atmosphere.

In addition to my duties as a co-owner of and accounting and tax firm, I also provide financial planning and investment services to my clients. In my experience, only a small number of employees voluntarily contribute to employer-sponsored retirement plans like 401(k) or simple IRA plans – maybe 25 percent to 50 percent.

So it would seem this SB 1234 would have similar participation rates and would not solve employee retirement issues as they are thinking it will. However, they will probably find higher participation rates than private plans because they are mandating participation. Employees have to proactively opt out of the program and many won’t take the time to learn how to do that.

Joe Schimandle CPA is the managing partner of the accounting and tax firm Schimandle & Associates LLP and proprietor of S&A Financial Services in Arroyo Grande California serving his clients since 1977.

 


23 Comments

  1. Russ J says:

    Meanwhile, state workers have they’re own separate 401K (calpers) – guaranteed by the good old taxpayers. No social security program for them. They’re much too good for that.

    Like or Dislike: Thumb up 7 Thumb down 1

  2. The Gimlet Eye says:

    Joe, the people you are talking about are not “progressives,” they are FASCISTS.

    The system you are talking about is a “crony collectivist” one.

    Nothing good comes from government.

    Like or Dislike: Thumb up 7 Thumb down 4

    • kettle says:

      The Gimlet Eye says: “Nothing good comes from government.”

      Thanks for bringing that up for the nth time. Cut up your ss card and drivers licence so you can stay off of our tired but fine roads.
      Are you by chance retired? get any checks? Cut them up.
      Why are you complaining useing our government invented internet?

      Seriously, repeating something until you can’t see the leaves for the trees does not make it correct or true.
      Somewhere in the 3rd world is a government that meets your needs, easy to find.

      Like or Dislike: Thumb up 3 Thumb down 12

  3. isoslo says:

    Thanks for the work Joe! It is another Ponzi scheme, designed to rip off the taxpayers and benefit the government millionaire retirees

    Like or Dislike: Thumb up 10 Thumb down 0

  4. justme says:

    They’re trying to soften the coming economic diaster that faces the entire U.S. by taking today’s dollars and returning them in their hyper-inflated state down the road. The same road they’re kicking that proverbial “can” down.

    Like or Dislike: Thumb up 12 Thumb down 0

  5. danika says:

    Here is how the votes went down to pass this thing:

    Date Result Location Ayes Noes NVR Motion
    08/31/12 (PASS) Senate Floor 25 13 2 Unfinished Supp 4 SB1234 De León, AYES: Alquist, Calderon, Corbett, Correa, De León, DeSaulnier, Evans, Hancock, Hernandez, Kehoe, Leno, Lieu, Liu, Lowenthal, Negrete McLeod, Padilla, Pavley, Price, Rubio, Simitian, Steinberg, Vargas, Wolk, Wright, Yee

    NOES: Anderson, Berryhill, Blakeslee, Cannella, Dutton, Emmerson, Fuller, Gaines, Harman, Huff, La Malfa, Strickland, Walters

    No Votes Recorded: Runner, Wyland

    From the website: http://leginfo.legislature.ca.gov/faces/billTextClient.xhtml

    Like or Dislike: Thumb up 11 Thumb down 0

  6. It is always about money says:

    It is just another way that Sacramento politicians can fund their spending in Sacramento. The fund will be raided to cover more state programs and we will get a promise that the state will pay the money back. The only way they will be able to return the money will be by selling bonds, which will add even greater debt on the backs of tax payers.

    Like or Dislike: Thumb up 18 Thumb down 1

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