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Letter to the editor: Do real estate brokers need to offer their employees 401k plans? | firsttuesday Journal – first tuesday Journal

Question: Do California real estate brokers need to 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 need to offer 401k plans to their employees.

California employers are required to offer access to a retirement plan when they have five or more employees. [Calif. Government Code §100000(d)]

When employee numbers fluctuate, the requirement is based on the average number of individuals employed during the prior calendar year. [Calif. Code of Regulations §10001(a)]

But are real estate agents considered employees?

Brokers typically negotiate fee sharing arrangements with agents they employ using an independent contractor (IC) agreement to document the employment. [See RPI Form 506]

Alternatively, brokers may choose other pay and tax withholding arrangements documented by an employee agreement form. [See RPI Form 505]

Independent contractors do not count toward the broker’s five employee threshold. However, brokers with five or more regular employees (including part-time assistants and other unlicensed staff) need to provide access to a retirement plan.

CalSaver plans

Employers may offer a plan through:

  • their own employer-sponsored plan; or
  • the state-administrated retirement savings program, CalSavers. [Gov C 100000(d)]

Eligible California employers that don’t offer their own employer-sponsored retirement savings plan need to register with CalSavers. This program was created by state legislation and provides employees of small businesses access to retirement plans, including automatic payroll deductions.

CalSavers offers a variety of investment options, customizable based on each employee’s targeted year of retirement. Based on their selection, each retirement plan will include investment in a mix of bonds, stocks and other investment tools.

CalSavers does not charge employers any fees. However, employers do need to take the time to register their employees with CalSavers and facilitate the setup of automatic payroll deductions.

An employer is exempt from registering with CalSavers when they already offer an eligible retirement plan which qualifies for favorable federal income tax treatment. This includes a:

  • defined benefit plan;
  • 401k plan;
  • simplified employee pension (SEP) plan;
  • savings incentive match plan for employees (SIMPLE); or
  • automatic enrollment payroll deduction IRA. [Gov C 100032(g)(1)]

However, pending legislation may change the current five-or-more-employees requirement to employers with even a single employee. Under SB 1126, employers with one or more employee will need to offer a retirement plan or register with CalSavers.

Editor’s note — Stay up to date on SB 1126 and other pending legislation with the potential to impact your real estate practice at firsttuesday’s page for Legislative Gossip.

Saving for retirement without an employer

Even when their broker is exempt, sales agents and broker associates may enroll in CalSavers as individuals — without the assistance of an employer.

To enroll, the individual needs to:

  • have earned income;
  • be 18 or older;
  • have a bank account;
  • provide personal identifying information; and
  • make a contribution of at least:
    • $10 from a bank account initially; or
    • $10 recurring deposit or payroll deposit per quarter.

Employees pay an annual fee of 0.825% to 0.95% of their account balance, annually. The balance is automatically deducted from the saver’s balance.

To begin the enrollment process, visit the CalSavers website.

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