401k - California - unsure of responsibility

[OgOm8]

Hi all,
I work for a smaller company (~ 50 employees) that is part of an international corporation. The sm company I work for is based in California, and its employees are not employees of the larger corporation, but of a PEO.

For the last two years, I've been trying to find out why we don't have a 401k. I think CA law requires it for workplaces with more than 5 employees at this point (though I'm not sure.). I've asked our general manager, who is an employee of the corporation, and he says it should be through the PEO. I asked the PEO and they say that the general manager declined 401k benefits when signing up. The PEO contract also says that any state or local regulations are the responsibility of the signer (the general manager).

I've been asking the GM to look into it, but - it's been two years. I'm a patient person, but it's wearing thin, and I really could use the benefits that a 401k brings. I don't know that the larger corporation would care, but I don't want to take the chance that they don't, and then the GM retaliates.

So, the question is - who should I focus on to get this taken care of? What recourse do I have as a worker based in CA? Or do I just need to let it go and try to find a new job (not easy, for reasons) Any help would be appreciated.

 

[bcr229]

Did your employer enroll in CalSavers?

 

[OgOm8]

No. GM is reluctant to explore this. For the last two years. I’m not exactly sure why.

 

[cbg]

For the purpose of this question I don't care where the employer is based; I care where YOU are.

Are YOU in California?

 

[OgOm8]

Apologies - yes, I am in California.

 

[cbg]

Just making sure I understand - you are employed by the PEO and not directly from the company?

 

[OgOm8]

Correct. I’m employed by the PEO.

 

[cbg]

Okay. I'm going to have to think about this one. Since you are not an employee of the company, it doesn't matter what they do (at least not as far as you're concerned). As you are employed by the PEO, your benefits are their responsibility. However, if the company didn't opt into their 401(k), I'm not sure whether you'd be eligible. Does the PEO have anything through CalSavers?

@PayrollHRGuy if you're out there, you're better with PEO's than I am. Any thoughts?

 

[OgOm8]

Yeah, this one is tricky. The PEO is not enrolled in CalSavers and denies responsibility due to the clause in their contract leaving compliance with state regulations up to the signer.

 

[LdiJ]

Okay. I'm going to have to think about this one. Since you are not an employee of the company, it doesn't matter what they do (at least not as far as you're concerned). As you are employed by the PEO, your benefits are their responsibility. However, if the company didn't opt into their 401(k), I'm not sure whether you'd be eligible. Does the PEO have anything through CalSavers?

@PayrollHRGuy if you're out there, you're better with PEO's than I am. Any thoughts?

Isn't the whole point of a PEO so that the client company does not have to think about or deal with employee benefit programs or compliance with state laws regarding employee benefits? If that is the case then how could a PEO company pass it off as the client's decision whether or not to opt into a 401k? What am I not understanding?

 

[cbg]

L, I'm confused too. But the problem is that the OP is correct; CA law does require that employers of 5 or more employers must either enroll in Cal Savers or offer a 401(k). In this case I'm not sure who the OP would take action against or even what action to take. That's why I'm hoping PayrollDude will chime in if he wanders through; he's a lot more savvy about PEO's than I am.

@Taxing Matters - any thoughts?

 

[LdiJ]

L, I'm confused too. But the problem is that the OP is correct; CA law does require that employers of 5 or more employers must either enroll in Cal Savers or offer a 401(k). In this case I'm not sure who the OP would take action against or even what action to take. That's why I'm hoping PayrollDude will chime in if he wanders through; he's a lot more savvy about PEO's than I am.

@Taxing Matters - any thoughts?

Is the client company an actual employer though?

 

[cbg]

That's the problem. The PEO is the employer, but the client company (appears to be the one who) elects the benefits. And that's where my knowledge breaks down. Where it is a mandatory benefit it would seem to me that the PEO, who is the one responsible. But whether they can or can't mandate the election of a mandatory benefit is something I just don't know.

This OP may be better off talking to the DLSE.

 

[Taxing Matters]

The exact details of the arrangement matter. It is the employer that has the responsibility to provide the benefits. The CA law requirement for 2025 is that CA employers with at least five employee must provide employee retirement benefits either through CalSavers or a qualified retirement (of which the §401(k) plan is the most common plan, but it's not the only option). The employer must automatically enroll the employee for the benefit unless the employee opts out. The key when a PEO is involved is determining who the actual employer is, and sometimes it may be both the PEO and the company that hired the PEO. That's why the details of the arrangement, as well as the role of the particular employee at issue, matter. If the OP is truly employed by the PEO and the client company has no employer role with that employee then the PEO must adhere to the California law. The PEO in that case definitely can't defer to the client company for the decision because the person is not the client's employee. The one thing that is clear is that the OP ought to provided CalSavers or other qualified plan by one of them unless the OP opted out. But with reading the PEO contract and not knowing the details of the OP's role and what relationship the OP has with the PEO and the client I can't say which one (or perhaps both) have the requirement. If both do then they can decide between them which one takes on that responsibility but they can't both point to the other as being responsible so as to evade the requirement entirely.

This OP may be better off talking to the DLSE.

That would be a good place to start. Talking with an employment law attorney or tax attorney who has knowledge and experience with employee plans is probably also something that should be considered to get specific legal advice. The DLSE can't provide that. Rmployee plans is a complex and specialized area and not all employment law and tax law attorneys will have that. For example I have LL.M (an advanced law degree similar to a medical doctor's speciality training in something like cardiology) in tax law. The law school I attended for that LL.M also offered a LL.M in employee plans. That should give you an idea of just how in depth employee plan law is. While the DSLE can't provide specific legal advice, it can provide a lot of general guidance and, if it receives a complaint from an employee, it can investigate and make the determination of which entity has the responsibility to meet the retirement plan requirement. CalSavers does not cost employers much and therefore once an employer is aware of the requirement there is little reason for the employer to not at least use CalSavers if it doesn't want the extra work and financial responsibility for something like a §401(k) plan.

 

[cbg]

Thanks, Tax.