CalSaversState-Run MandatoryRetirement Program

WHAT IT MEANS FOR BUSINESSES

Presented by: Terri McGray, CFP, AIFPresident, Longevity Capital Management LLC

Disclosures

This information was developed as a general guide to educate, but it is not intended as authoritative guidance or tax or legal advice.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Investing in stock includes numerous specific risks including; the fluctuation of dividend, loss of principal and potential illiquidity of the investment in a falling market.

Investing involves risk, including loss of principal. No strategy assures success or protects against loss.

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Compliance Assistance

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Today’s Objective

Assess California’s state-run mandatory retirement program and analyze the potential impact on the nation.1

2

3

4

5

Identify how this may affect legislation in other states.

Examine the potential future impact on federal policies.

Present case studies as to why business owners should care and take independent action.

Present leadership steps to take in order to promote employer control.

State-Managed Individual IRA

For private sector workers whose employers do not offer a retirement plan

The program has minimal administrative requirements for employers

State law protects employers from any liability or fiduciary responsibilities

State Law requires the program to be exempt from the Employee Retirement

Income Security Act (ERISA).

What’s your retirement plan?

*Used with permission.

Americans are not saving adequately for retirement

Our National Retirement Crisis

13

Half of California workers are projected to have serious economic hardship when they retire because they don’t have sufficient savings.1

7 million private sector workers in California—55%—do not have access to a pension or 401k at work.1

“Our large cities are drowning in unfunded pension liabilities.”2

Workers Need Help!

1California Labor Federation 2 Connecticut Conference of Municipalities. 2019 3 Oregon Business Council 4 Research from JP Morgan

Oregon’s public pension deficit has grown to $25.3 billion3

Illinois’ pension crisis is the worst in the nation4

New Jersey’s pension problem is second-worst in the U.S4

“Half of the private-sector workforce is not participating in a workplace-sponsored retirement plan. That’s 58 million workers

-a deficit that, if continues, could quash workers’ futures and health, and strain the U.S. economy.”

The Pension Rights Center, 2019

“Perhaps the most frightening fact that must be considered is that a lack of retirement money poses a danger to the economy. Policy makers have to be concerned about what the implications will be of a population that will age and retire with insufficient retirement income,” she said. “That means more people will rely on safety-net programs, such as food stamps and housing assistance. “

Angela M. Antonelli is a Research Professor and the Executive Director of the Center for Retirement Initiatives (CRI) at Georgetown University’s McCourt School of Public Policy, which is one of the top ranked public policy programs in the nation.

The Federal Government Has Taken Up the Issue

President Trump signed an executive order at the end of August directing the Treasury and Labor departments to review current policies and consider regulations that would make it easier for small businesses to offer 401(k)-type plans.

“We believe all Americans should be able to retire with the confidence, dignity and economic security that you want,” Trump said of the executive order.

“Retirement”is a new word

Prior to the 18th century, humans had an average life expectancy between 26 and 40 years.

Source: Society of Actuaries RP-2014 Mortality Table projected with Mortality Improvement Scale mp-2014, 2106

Life Expectancy in Retirement

The Vanishing Pension

Only 16% of Fortune 500 companies offered a pension to new hires in 2017

Down from 59% in 1998, according to Willis Towers Watson.

The majority of these companies are set to reduce, eliminated or freeze these pension plans for new hires.

Every state has an underfunded pension. (Half of them are funded 70% or less).

Colorado, Connecticut, Illinois, Kentucky and New Jersey has a funding shortfall of over 50%.

Source: Go Banking Ranks, June 2019 The Pew Charitable Trusts.

Poll Question #1:

According to the Society of Actuaries, of those who make it to age 65 which of the following is true:

a) 90% will live to age 84

b) 1/3 of all men will live to age 87

c) The majority of women will live to age 90

d) Surviving spouses are projected to live to age 94

Retro Report’s mission is to arm the public with a more complete picture of today’s most important

stories.Sign up for newsletter: www.retroreport.org

WORKERS ARE 15 TIMES MORE LIKELY

TO PROACTIVELY SAVE FOR

RETIREMENT

when they have a

savings plan

available through

their employer.

Emerging Trend

• OregonSavers• Illinois Savers Choice• Connecticut Retirement Security

Authority• Maryland Small Business Retirement

Savings Program and Trust• Massachusetts Secure ChoiceEven with uncertainty about the federal legislative and

regulatory landscape—and a contentious political

climate—state leaders continue to forge ahead with

retirement security efforts.

The Crisis is Deepening

Some members of the financial-services industry argue that states shouldn’t be providing those sorts of plans, and that they offer a weak alternative with limited investment choices as well as higher fees.

Still, workers have to start saving somehow, and if they aren’t taking the initiative to do it on their own, states have decided to act for them.

Without any improvement, there could be disaster. Americans won’t be able to afford leaving their jobs, instead working well into old age with assorted ailments illnesses.

The federal and state governments will suffer as well, financially and societally, as their budgets are drained to care for and support elderly individuals.

There are nearly 600,000 working people in Connecticut with no access to workplace-based retirement savings and that number is growing.

Roughly 49% of employers in Massachusetts do not offer their employees a retirement plan. The mandatory state program called Secure Choice Individual Retirement Account Program is launched and now open for enrollment.

Median retirement savings for all working families in Illinois is only $3,000. Secure Choice Savings Program Act was created.

About 1,000,000 Maryland residents work for companies that don’t offer a retirement savings plan.

An estimated 1.7 million New Jersey employees don’t have access to a retirement plan through their employer.

An estimated 3.5 million private sector employees in New York work for employers that do not offer a pension, a 401(k) plan or another savings option, according to AARP, which has lobbied in support of the plans. New York has adopted legislation that calls for a state program to be developed by 2020.

One million or more workers in Oregon do not have access to an employer-sponsored retirement plan. The state opened its program to all eligible employers. According to state authorities, the combined savings of the first groups of participating savers was $5 million.

As many as 45% of Vermont workers don’t have a retirement plan through their employer. The state program launched January 2019.

In Washington, less than 50% of workers participate in a employer-sponsored retirement plan.

What’s Going on in America

Source: Office of the State Treasurer

What is CalSavers?

Roth IRA – After Tax Dollars

Current limits $6,000

Over age 50 an additional $1,000 Catch Up

Income limits

No waiting period

No vesting period

The rule for state-sponsored plans provided a limited safe harbor exemption from ERISA if a program meets certain requirements. Among them, employees must be allowed to opt

out, and employers, who cannot make contributions themselves, must play a limited administrative role. The rule also required certain employee protections.

CALSAVERS COMPLIANCE DEADLINES

5 or More Employees

June 30, 2022

Over 50 Employees

June 30, 2021

Over 100 Employees

June 30, 2020All Mandatory

Employers Can

Register Now

But Must Register

By:

Are you a Mandatory Employer?

• Qualified retirement plans include:

• Qualified pension plans;

• 401(k) plans;

• 403(a) plans;

• 403(b) plans;

• Simplified Employee Pension (SEP) plans;

• Savings Incentive Match Plan for Employees (SIMPLE) plans;

• Payroll deduction IRAs with automatic enrollment.

Employers with 5 or more employees who do not

offer a qualified retirement plan

What Are Employers Responsible For?

Registering

Providing basic employee roster

information

Facilitating payroll

deduction

Deduct and remit

contributions

Add new eligible employees to the program

No Cost to

Employer

Employers are required to remain neutral about

their employees’ participation and may

not encourage or discourage

participation.

CalSavers contacts employees directly

Automatic Enrollment

Employee can opt-out

No action within 30 days = auto-enroll

Default savings rate is 5%

Auto-increase 1% a year to 8%

Must contact CalSavers to make changes

What Are Employees

Responsible For?

Auto-enrollment, wherein workers are automatically put into a retirement plan, is a powerful tool.

The concept, which is supported by Nobel Prize-winning economist Richard Thaler, might have added almost $30 billion to retirement-account balances since 2006.

Between 15 million and 16 million people have boosted their savings rates, four times as many as in 2011, because of auto-enrollment, according to Thaler and colleague ShlomoBenartzi’s research.

One of the beauties of the automatic features is, if you take your natural inclination not to do anything, you’ve made a good decision [in not having opted out].

If we wait and say to people, ‘Well, here’s a brochure, you can read it or take an online course to learn the difference between a stock and a bond,’ we know a large number of people will just ignore it.

A Word About Auto-Enroll

Am I responsible for

participation?

Am I liable for the

investments?

Will there be penalties for

noncompliance?

How will this help my

business?

Common Employer Questions

What is the default rate for CalSavers?

a) 3%

b) 4%

c) 5%

d) 8%

Poll Question #2:

Employee CalSavers

Employer

The Employer:

Has no control

Has no authority

Has no liability or responsibility (other than

enrolling and submitting contributions)

Will not receive any compensation or tax-deductions for the program

May not provide tax, legal, investment or financial advice or guidance

Will not manage personal information including beneficiaries

The Employee: Participation will be voluntary.

Must be Age 18 or older

Automatic Enrollment (5%)

Automatic Escalation (1% up to 8%)

Choose Investment Options (default

option Target Date Funds)

Designate Beneficiaries

Distribution Requests via Phone or Online

May Make Rollovers into CalSavers (not currently available)

May Make Rollovers out of CalSavers into Roth IRA

One CalSavers Account

Do I have to participate?

How much do I have to

contribute?

What happens if I change jobs?

How do I access my account?

Can I make changes to my

contributions or investments?

Who can answer my questions?

Common Employee

Questions

Roth Contribution Limits

• Can be complicated

• May change each year

• Varies based on MAGI

Poll Question #4:

How many CalSavers Accounts might an employee have?

a) One per person

b) One per job

c) One per married couple

d) As many as he or she desires

Poll Question #3:

CalSavers Fees

CalSavers Investment Options

Additional Questions We

Should Be Asking

Who will help understand and employees track contribution limits?

Who handles death benefits and beneficiary issues?

What happens if an employee goes over the IRS income or contribution limits?

Who selects the investment options?

Who provides employee education?

Who provides assistance with investment selections?

Who assumes the investment risk?

Who pays the administrative fees and are they fair and reasonable?

Are the administrative fees guaranteed or can they increase?

Poll Question #5:

How much does CalSavers cost the employee?

a) There is a 0.025 to 0.15% underlying fund-based fee

b) Participants will pay 0.80 to 0.95% total asset-based annualized fee

c) Participating employees will pay a 0.05% state fee

d) All of the above are correct

Poll Question #4:

What Do Opponents Say About CalSavers?

• “A State Run Program that competes with the marketplace is not the answer”NAIFA

• “Access and availability to retirement savings plans is not the problem”U.S. Chamber of

Commerce

• “States should focus on education programs”Center for Research at

Boston College

• “Who will be responsible for poor investment performance, litigation risks and higher potential administration costs?”Independent Study Groups

• “ERISA law established stringent administrative requirements and legal protections for retirement plans nationwide.”

Howard Jarvis Taxpayers Association

• State-sponsored plans force employers and employees to use a particular vendor, which means plan sponsors and participants can’t make their own choices.”

Independent Investment Firms

Visitwww.longevitycapitalmgmt.com

Employer Checklist

CalSavers Program Disclosure Booklet

Online FAQsSchedule

Consultation

Today’s Realities

Study after study shows Americans losing confidence in a prosperous retirement, and yet, despite this, many are still not preparing properly.

Some workers have said they just can’t set aside money living paycheck to paycheck, while others can’t make sense of financial advice and become discouraged, thinking they’ll never be able to figure it out.

Some 46% of Americans anticipate they won’t be financially comfortable in retirement, a Gallup poll in May found.

This figure has been steadily rising since Gallup first began tracking this sentiment in 2002.

How Will CalSavers Help Build Financial Literacy?

More than half of American workers (55%) say they are unable to save for retirement and manage other financial goals at the same time.

Source: 2019 EBRI/Greenwald Retirement Confidence Study

Facts:

1 in 3 Less than

$5,000 saved for retirement

1 in 5No retirement savings at all

1 in 3Baby Boomers have Zero to

$25,000 saved

Source: Pew Research Center, Employee Benefit Research Institute, Northwestern Mutual Retirement Study

Cost of Financial Stress to Employers

37% of all employees say they spend three hours or more each

work week 1

156 hours

every year 2

4.9 sick days

per year 3

Averaged $36.32

per hour 4

100 full time employees =

potential cost of over $250,000 a year

1American Psychological Association. “Stress in America. Paying with Our Health 2PricewaterhouseCoopers LLP. 3U.S. Department of Labor. “Employer Costs for Employee Compensation” (2018): Bureau of Labor Statistics. Sept. 2018.

WORKERS OVER 50 SAY THEY DO NOT

PLAN ON RETIRING.NORC Center for Public Affairs Research

MORE AND MORE

How Much Are People Saving?

Median Retirement Account Balances:

Private Sector Workers: $25,000

Private Sector Workers Ages 55-64:

$40,000

Median Retirement Account Balances:

Public and Private Sector Households:

$44,000

Households with a worker or spouse

Ages 55-64: $100,000

Private Sector Workers Offered

Retirement Savings Plan: 61%

Private Sector Workers

Participating: 43%

Private Sector workers offered plans who participate: 70%

Private and Public-Sector Households participating in a

plan: 45%

Source: The Journal of Applied Business Research, Retirement Savings Of Private And Public Sector Employees: A Comparative Study, 2018

Poll Question #2:

Which of the following is an example of current opposition to CalSavers?

a) The Roth IRA can be confusing and difficult to track.

b) States should focus on providing education.

c) Auto-enroll may force workers to take action.

d) Employers should be encouraged to promote the program.

Poll Question #5:

Are you ready to take action?

“OUR NATIONAL ECONOMIC HEALTH CANNOT AND WILL NOT IMPROVE WITHOUT GOOD STEWARDSHIP”

Terri McGray, Retire Ready

How You Can Drive Change

Offer a Retirement Program

Monitor Your Plan

Have an Employee Education Program

Types of Employer Sponsored Retirement Plans

SEP IRA

Completely funded by the employer

Lesser of 25% of the employee's compensation or $56,000 for 2019

SIMPLE IRA

Mandatory employer match

$13,000 + $3,000 catch up limit

Cash Balance Plans

Like a pension with a 401(k) twist

401(k) or 403(b)

$19,000 + $6,000 catchup

Employer match optional

100% of compensation or $56,000 + catch up

Profit Sharing

Employer Discretionary Contributions

Payroll-Deductible IRA

$6,000 annual limit

No employer contributions

Cash Balance PlansCash Balance Plans

Contribution Estimates by Age Bands

Plan Design

Eligibility

Automatics

Auto Enroll

Auto Increase

Auto Re-enrollment

Matching Formula

Testing Hurdles

Financial Advisor

Promote Participation

Fee Monitoring

When was the last time you benchmarked your plan?

Did you check advisory fees?

Provider Fees

TPA Fees

Investment Expenses

Hidden Charges

Promote Value

Investment Monitoring

When was the last time you benchmarked your investment menu?

When was the last time you added or removed a fund?

Do you have a written investment policy statement?

Do you follow it?

How often does your committee review the investment menu?

Promote Growth

Past performance is not a guarantee of future results. Reported by Dalbar2018.

2018 DALBAR study shows the Average Equity Fund Investor lost twice the money of the S&P in 2018

Poor timing caused a loss of -9.42% on the year compared to an S&P 500 index that retreated only -4.38%.

In October, a bad month for the market (-6.84% S&P 500 return vs. -7.97% Avg. Equity Investor Return) the investor lagged by 113 basis points, while in August, a strong month for the market (+3.26% S&P 500 return vs. 1.80% Avg. Equity Investor Return) the Average Investor lagged by 146 basis points.

Internal Controls

When was the last time you did an ERISA self-audit?

Do you document your meeting minutes?

Any firm can be subject to DOL audit and/or penalties

Is it time for a service review?

Vendor review

Advisor review

Protect Your Company

401(k) Benefits

• Ranked second most important benefit by employees

• Helps reduce financial stress

• Transition out an aging workforce

Our National Retirement Health Will Impact Our FutureSocial Security

Medicare and Supplemental Insurance

Prescription Drugs

Medicaid

Federal Taxes

Employer Costs and Sharing Arrangements

Business Revenue Growth

Investment Returns

Inflation

Economic Health

Global Health

32,000,000

Source: Insured

Retirement Institute

Let’s fix it together.

OUR

This information was developed as a

general guide to education but is not

intended as authoritative guidance or tax or

legal advice. Each plan has unique

requirements, and you should consult a

qualified consultant for guidance on your

specific situation.

Terri McGray is a registered representative with and security

and advisory services offered through LPL Financial, a

registered investment advisor, Member FINRA/SIPC.

Questions?