Legislatures breaking the backs of California businesses
November 5, 2012
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.