Letter to the editor: Should real estate brokers offer 401k plans to their employees?
Question: Should California real estate brokers offer their employees access to 401k plans?
Answer: Most brokers do not need to offer their employees 401k plans. However, as of June 30, 2022, brokers with five or more employees must offer 401k plans to their employees.
California employers are required to provide access to a pension plan when they have five or more employees. [Calif. Government Code §100000(d)]
When the number of employees fluctuates, the requirement is based on the average number of people employed during the previous calendar year. [Calif. Code of Regulations §10001(a)]
But are real estate agents considered employees?
Brokers typically negotiate fee-sharing agreements with the agents they employ using a independent contractor agreement (IC) to document employment. [See RPI Form 506]
Alternatively, brokers may choose other tax and payroll withholding arrangements documented by an employee agreement form. [See RPI Form 505]
Independent contractors do not count against the broker’s five-employee threshold. However, brokers with five or more regular employees (including part-time assistants and other unlicensed employees) must provide access to a pension plan.
Employers can offer a plan by:
- theirs employer-sponsored plan; Where
- the state retirement savings program, CalSavers. [Gov C 100000(d)]
Eligible California employers who do not offer their own employer-sponsored retirement savings plan must register with CalSavers. This program was created by state legislation and provides small business employees with access to retirement plans, including automatic payroll deductions.
CalSavers offers a variety of investment options, customizable based on each employee’s targeted retirement year. Depending on their selection, each retirement plan will include investment in a combination of bonds, stocks and other investment tools.
CalSavers does not charge any fees to employers. However, employers should take the time to enroll their employees with CalSavers and make it easy to set up automatic payroll deductions.
An employer is exempt from registering with CalSavers when it already offers a qualifying retirement plan that receives favorable federal tax treatment. This includes a:
- defined benefit plan;
- 401k plan;
- simplified employee pension scheme (SEP);
- savings incentive plan for employees (SIMPLE); Where
- direct debit from IRA payroll. [Gov C 100032(g)(1)]
However, pending legislation may modify the current requirement of five or more employees for employers with only one employee. Under SB 1126, employers with one or more employees will be required to offer a retirement plan or register with CalSavers.
Editor’s Note – Stay up to date on SB 1126 and other pending laws that may impact your real estate practice at the first tuesday page for Legislative gossip.
Saving for retirement without an employer
Even when their broker is exempt, sales agents and associate brokers can enroll in CalSavers as individuals, without the help of an employer.
To register, the person must:
- have earned an income;
- be 18 or older;
- have a bank account;
- provide personally identifiable information; and
- make a contribution of at least:
- $10 from a bank account initially; Where
- $10 recurring deposit or quarterly payroll deposit.
Employees pay a annual subscription from 0.825% to 0.95% of their account balance, annually. The balance is automatically deducted from the saver’s balance.
To begin the registration process, visit the CalSavers website.
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