Did you know that in 2020 Colorado passed a law that mandates that small business owners will have to offer 401Ks to their employees if they have 5 employees or more?
In 2020, Colorado passed the Colorado Secure Savings Program. This law mandates that small business owners enroll in a state-run retirement savings plan. The pilot program is launching in October 2022 and employers throughout Colorado will be required to comply starting in 2023. Colorado said they decided to do this because more than 40% of our workforce in the private sector does not have access to a retirement savings plan at work.
Currently, this plan set forth is going to require that 5% of your employees pay goes into the Colorado Secure Savings account. It also has a default annual increase. So, after the first year your employee will see an additional 1% withheld. This means that in year 2 for your employee will have 6% of their paycheck withheld for the state mandated 401K. The state says that they can change their rate at any time. However, if your employee is like most, they may get too busy or forget to change it while they are working hard to provide for themselves and their families.
As for the administration costs for your employees, each employee investing in this plan it will cost them approximately 0.32%. This means that each employee will pay approximately $0.32 for every $100 in your account. There is also a $22 annual account fee (that is charged quarterly at $5.50 each quarter). These fees pay for the administration of the program and the operating expenses charged by the underlying investment funds in which the program’s portfolios are invested.
With the costs of groceries, gas, housing and everything else going up. This puts your employees at an unfair advantage. You can help them by setting up a 401K plan through your company. You’ll have a dedicated team to take care of you and your employees.
There are some perks to starting a 401K for your business and letting your employees invest in their retirement.
Did you know that for every contribution your employees make to a 401K, you do not have to pay payroll taxes on this amount? Plus, your employees will not be taxed on this contribution until they pull funds from their 401k. This helps reduce your tax liability.