OregonSaves rules, regulations, and guidelines for small business owners

OregonSaves rules, regulations, and guidelines for small business owners


By this time next year, just about every employer in the state of Oregon will be required to offer their employees a retirement savings program to save in, regardless of how many employees they have—whether it be one or 100.

That’s because Oregon, like many other states across the country, has introduced legislation to help close the coverage gap among retirement savers, mandating that small businesses and large business alike provide employees with a savings vehicle that will allow them to prepare for their future retirement. Employers who don’t already offer a retirement plan to employees will be required to either adopt a qualified plan or register to offer Oregon’s new state-run retirement program, OregonSaves.

Why is Oregon introducing a state-run retirement plan?

Allow us to set the stage: the retirement “crisis” has been looming large over recent years, with a sizeable decrease in the prevalence of traditional pension plan offerings and an increase in the responsibility employees have to prepare on their own for a financially-secure retirement. Adding to the issue is that workers are 15 times more likely to save for retirement when they have a savings plan offered through their job, yet there’s a serious lack of access to retirement plans among employees of small businesses and low-income workers. Roughly one million workers—more than half of the working population in the state of Oregon—don’t have a retirement savings option at work, and even worse, average savings for those nearing retirement age sits at just $12,000 [1]. That’s not enough to get through one year of retirement, let alone 18—the average amount of time someone can expect to be retired in the United States [2].

Yikes.

The state government has stepped in to protect the economic future of its citizenry by closing the coverage gap and opening up access to retirement savings options at work, and it’s decided to do so by implementing a mandated state-run plan. The program has been in operation since 2018, and within the next year, all employers in the state of Oregon will be affected in one way or another.

Read more: Why are states beginning to mandate small business retirement plans?

OregonSaves retirement program details

OregonSaves is set up as a Roth IRA, meaning employees will pay tax on contributions upfront but distributions will be tax-free at retirement time. Employees are auto-enrolled in the program at 5 percent of their gross pay, with an annual automatic contribution increase of 1 percent until the employee is contributing 10 percent of their salary to the account. The account is held in the employee’s name, so regardless of whether they change jobs, move, or instead stay with the same employer until they retire, the account will always remain with them.

OregonSaves employee fees and contribution limits

OregonSaves was designed to be relatively hands-off for the employer (though business owners do have certain ongoing responsibilities related to the program), but as such, administrative and plan fees are charged to the employee rather than the employer. Employee fees cost approximately 1 percent of assets per year—in other words, employees will pay about $1 in fees for every $100 in their account. The fees cover plan administration, fees of the trustee/custodian, and operating expenses charged by funds in which the program’s investment options are invested.

Employees will also need to adhere to strict Roth IRA contribution limits: $6,000 annually for those 50 and under and an additional $1,000 per year in catch-up contributions for those over the age of 50. Employees also have the option to change their IRA account from Roth to Traditional, which may be necessary for certain employees—especially high-earners who exceed Roth IRA income limitations set by the federal government.

What steps do employers have to take to facilitate OregonSaves?

As we mentioned, employers are required to facilitate the program unless they choose to offer another qualified retirement plan. OregonSaves is designed for employers who may not have the time or resources to offer employees a different qualified plan, but that doesn’t mean business owners won’t have ongoing administrative tasks relating to the state-run offering. All employees who’ve been with the company for 60 days are eligible to participate in OregonSaves, and employers are responsible for facilitating the program for those employees. Business owners, their family members, and company shareholders are allowed to participate, but only if they’re also considered an employee of the business for tax purposes.

Employer responsibilities for facilitating OregonSaves include:

  • Registering for the program prior to registration deadlines

  • Adding delegates/payroll representatives to assist with ongoing account maintenance

  • Setting up payroll

    • When registering and setting up OregonSaves, employers must add at least one payroll list and set a payroll date that’s at least 30 days from the date the list was created so employees can opt out of the program or customize their account settings if they choose.

  • Adding employees to the program

    • Employers will be responsible for adding all eligible employees, regardless of whether they’ve expressed interest in being involved or not, so OregonSaves can contact them to help the employee setup their account elections or opt out of the program entirely. Employers can choose to either do this manually or by using the Employee Information Template spreadsheet available on the OregonSaves website.

  • Sending timely contributions

    • This one is important: employers will have to ensure they are deducting the correct percentage from each employee’s regular paycheck as determined by the employee. This can again be done manually using an online form or by using OregonSaves’ Employee Contribution Template spreadsheet.

  • Performing ongoing maintenance

    • Lastly, employers will have various ongoing maintenance tasks, such as submitting employee contributions each payroll period and ensuring their employee list is accurate and up-to-date with new hires, newly eligible employees, etc.

Employer registration deadlines for OregonSaves

Business owners will be notified by OregonSaves when the appropriate registration deadline for their business is approaching; to register, employers will need their Federal Employer Identification Number or Tax Identification Number and their OregonSaves access code from their registration notification.

Employer registration deadlines for OregonSaves are:

Penalties for non-compliance with Oregon’s state-run retirement plan

Employers will want to adhere to the above registration deadlines with vigilance because the penalties for non-compliance are substantial. Oregon Governor Kate Brown signed into law that any employer found to not be in compliance with the regulations outlined by OregonSaves will face penalties of up to $5,000 per year. The law is enforceable for employers that don’t comply with the rules of the program or if their employees still don’t have access to a retirement savings vehicle after the employer’s applicable registration deadline has passed. If the employer is found to be in violation, they’ll be charged a penalty of $100 per eligible employee, up to a maximum penalty of $5,000 per year. This law goes into effect January 1, 2020.

Is OregonSaves effective?

The state-run OregonSaves plan has been in operation since 2018, with business owners with more than 10 employees already active in the program. As of December 2018, more than 50,000 employees had already enrolled—about 66 percent of those who are eligible, contributing an average of 5.2 percent of their salary, or roughly $110 per month [3]. In total, assets had already exceeded $19 million in May of this year—so we’d say OregonSaves is off to a good start [4].

However, the state-run program is not the only option business owners have to satisfy the mandate, as we eluded to before.

Oregon’s state-run retirement plan vs. 401(k) plan

There are a variety of other qualified retirement plans that would satisfy the regulations of Oregon’s retirement mandate: a 401(k), SIMPLE IRA, qualified annuity plan under section 401(a), and a tax-sheltered annuity plan under 403(b)—to name a few. Business owners should note that payroll deduction IRAs do not satisfy the mandate in Oregon, though they do in other states, like California.

And in reality, OregonSaves wasn’t designed to compete with or replace existing retirement savings vehicles employers can offer their employees—it was developed as an option for business owners who don’t have the resources or time needed to offer a different qualified plan. According to the OregonSaves website, “Oregon’s program was not intended to replace employer-sponsored retirement plans, which have many important benefits. For example, 401(k) plans have higher employee contribution limits and allow for employer matching contributions, unlike OregonSaves.”

The advantages of 401(k) plans don’t end there, either. 401(k) plans offer:

  • Flexible plan design options and vesting schedules

  • Tax deductible contributions

  • Possible tax credit to help cover startup costs

  • Enhanced contribution options for owners and highly-compensated employees

  • Payroll integration capabilities to limit maintenance tasks for the employer

  • Helps attract and retain top talent—nearly 90% of employees say that a 401(k) is amust-have” benefit [5]

Business owners who want to put themselves, as well as their employees, in the best position possible to retire to a financially-secure future should weigh all of the qualified plan options available to them. Implementing a one-size-fits-all retirement solution just because it seems to be the easiest option available at first glance may not work in the best interest of you or your employees; keep in mind that small business 401(k) plans may be similarly cost-effective for the employer but include many additional benefits that can help participants and business owners arrive at retirement readiness when the time comes.

If Oregon’s retirement state mandates will (or already have) affected your small business, remember that you still have options—and that you’re not in this alone. We’re here to help; let’s talk about your plan options and find the best fit for you and your business: 800.236.7400, Option 1.


For more information about OregonSaves:

For more information about OregonSaves and its implications for you as a small business owner, visit the OregonSaves website here. If you’d rather speak to a representative from OregonSaves by phone, you can contact the program’s Client Service Team at 844-661-1256.

Sources:

[1] OregonSaves Frequently Asked Questions, OregonSaves, 2019.

[2] Average Retirement Age in the United States, TheBalance, 2019.

[3] OregonSaves Annual Report to the Legislature, Oregon Retirement Savings Board, 2019.

[4] State Treasurer Tobias Read highlights successful OregonSaves launch in U.S. Senate hearing, Oregon State Treasury, 2019.

[5] 2019 401(k) Participant Survey, Charles Schwab, 2019.