Next Round of OregonSaves: Is It Right for You?
On November 15, 2019, the State of Oregon is implementing its next round of private company retirement plan requirements. Those companies with 5 to 9 employees will be required to auto-enroll their employees into the OregonSaves retirement program if they do not currently have a retirement plan. Employers with 10 or more employees have been phased into implementation starting November 15, 2017, and are already under these requirements.
Oregon initiated the OregonSaves program in July 2017, in an effort to boost retirement preparedness and assist employees who may not have retirement programs with their employer. The program offers a Roth Individual Retirement Account (IRA) where the employee can make contributions through payroll deduction. All employees, full and part-time who have worked at least 60 days, are required to be auto enrolled by the employer into plan starting at 5% of their compensation with that rate increasing by 1% each year to a maximum of 10%. While the employee is auto enrolled, they still have the option to “opt-out” of the program and forgo participation. By no means is the employee required to start at 5%, but are given the ability to adjust their contribution percentage up or down as deemed necessary. The State merely gives the 5% as a starting point for employees.
Since the program is a payroll deduction Roth IRA, the requirements for OregonSaves are the same as any other Roth IRA plan. The limits are $6,000 for employees under 50 years of age and those employees 50 and over can contribute an extra $1,000 or a total of $7,000 each year. All funds contributed to the plan are from the employee and no employer contributions can be made. Contributions are also subject to the Roth IRA adjusted gross income phase out limitations going from $122,000 to $137,000 for single filers and $193,000 to $203,000 for married filing joint. To garner compliance with OregonSaves, the State requires all employers to register their company on the OregonSaves.com website whether or not the company has a retirement plan. Employers that do have a program such as a 401(k), 403(b), Simple IRA, Simplified Employee Pension (SEP) are exempt from the program. However, Oregon does require a check-in with them to re-certify their plan every 3 years.
Pros & Cons
On a positive note, OregonSaves is certainly an option for those small employers that do not have the financial means to adopt a company retirement plan. The program does not incur the administrative costs of a traditional 401(k) plan. Also, employer contributions are not allowed so the company will not have that expense. This program helps get employees started on saving for retirement when these employees may not even be thinking about making such steps for their future. The plan also allows employees to take their account to another employer if they change employment. The OregonSaves account belongs to the employee. The employers have no control over the accounts.
One drawback of the OregonSaves plan is the limit to annual contributions. See the comparison chart below. For those employers who are more able and desire to offer a broader array of benefits, a traditional 401(k) plan may be more in line with your company/employees’ needs. A 401(k) plan will allow your employees and your company more possibilities towards retirement savings.
For the 2019 calendar year, employees under age 50 are able to defer from their compensation up to $19,000. Employees age 50 and older can defer an extra $6,000 for a total of $25,000. This is considerably higher the than the Roth IRA limits allowed by the OregonSaves plan. In addition, 401(k) plans can allow the employee to make their contributions in pre-tax or after-tax (Roth) dollars not to exceed the total noted above. This is not to be confused with the Roth IRA (I know, too many Roths!) limits.
The benefits of a 401(k) plan extends to the employer side also. While the OregonSaves plan does not allow for employer contributions, a 401(k) plan does. The IRS puts limits on how much of a benefit an employee can have contributed to their retirement plan on an annual basis. Employers can contribute up to another $37,000 as a tax deductible contribution in the form of a profit sharing or matching contribution or a combination thereof. This takes the individual contributions for an employee up to $56,000 for employees under 50 years of age and those employees 50 and over up to $62,000. All qualified retirement plans are subject to compliance testing. Whether you are able to contribute up to this level depends on the specifics of your plan. Working with an experienced retirement plan professional can yield tremendous benefits.
A 401(k) plan offers advantages to company owners and their employees while giving each a meaningful benefit. With a properly structured plan, employers have the ability to help their employees and themselves save for retirement with larger contributions and increased flexibility, giving them the added bonus of tax savings for offering this to employees.
Whether you are able to offer a traditional defined contribution plan or ensure your employees have the opportunity to get involved in OregonSaves, the key for all of us is to start saving for a better retirement.
Comparing Provisions Between OregonSaves & Traditional 401(k) Plan
|Eligibility requirements:||Oregon Saves Plan||401(k) Plan|
|Must enter after working||60 days||1 year|
|Age requirement allowed||Not allowed||Age 21|
|Requires Employee contribution||Yes||No|
|Default Employee contribution starts at||5%||0%|
|Employee allowed to opt out||Yes||Yes|
|Pre-Tax Employee contribution allowed||No||Yes|
|Employee contribution limit*||$6,000||$19,000|
|Catch-up contribution limit if over age 50*||$1,000||$6,000|
|Employer contribution allowed||No||Yes|
|Employer contribution limit per individual||N/A||$37,000|
|Fiduciary and compliance requirements||No||Yes|
*limit determined annually