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Retirement Plan Deadlines for Cannabis Companies

September 25, 2020

As more and more companies in the cannabis industry consider implementing retirement plans they should be aware of a few important deadlines, both in the retirement planning space and with regard to state mandates.

More states are adopting mandatory retirement savings requirements for companies that employ W-2 employees. We have received a growing number of calls from cannabis companies asking if the state mandated retirement plan requirement applies to them.  The answer is YES! Generally, companies operating in the cannabis industry are not exempt from state mandated retirement savings plan requirements.

Oregon Cannabis Companies Have Until Late 2021 to put a Retirement Plan In Place!

Offering an employer-sponsored retirement plan in the state of Oregon is already required for businesses with 5 or more employees. For cannabis companies with less than 5 employees, the deadline to establish a retirement plan (before employees are automatically enrolled in OregonSaves) was January 2021! These businesss now have until late 2021 to enroll or put a plan in place before financial penalties kick in.

For business owners who don’t currently have a plan in place, the OregonSaves program can help save your business from facing various governmental penalties and fees. With it's Roth IRA set up, OregonSaves allows employees to take distributions tax-free when it's time to retire, assuming they pay taxes on contributions upfront. Employees are auto-enrolled in the program at 5% of their gross pay, with an automatic contribution increase of 1% annually until the employee is contributing 10% of their salary to the account.

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.”

New Jersey's Secure Choice Will Impact Newly Legalized Recreational Cannabis Companies!

Similar to several other states, New Jersey is developing state mandated retirement plan policies that businesses are required to abide by. New Jersey launched their state Auto-IRA plan in March 2021. Employers with 25 or more employees, will automatically have their employees enrolled, and a percent of their paychecks deducted and placed into the state-protected IRA. Although employees can opt out if they so choose. Employers with fewer than 25 employees are not required to participate, but do have the option of opting into the fund if they do not have their own.

Failure to comply, enroll your eligible employees, or remit the contributions to the plan can result in various penalties and fines.

Cannabis companies who anticipate operating in New Jersey need to be aware of the details of the Secure Choice before launching their business. Employers who fail to comply with Secure Choice legislation or fail to enroll employees into the program within 9 months will be subject to a variety of penalties, getting more severe over the course of Secure Choice’s implementation. If an employer collects contributions but fails to deposit any portion of the contribution, for example, they’ll be subject to a $2,500 fine for the first offense and up to $5,000 for subsequent offenses.

Illinois Secure Choice Retirement Plan Deadline is Here NOW!

If your cannabis company operates in Illinois with at least 25 employees, you must comply with the Illinois Secure Choice program or offer an employer-sponsored retirement plan.

Illinois requires all employers with 25 or more employees, who have been in operation for 2+ years to offer a retirement savings plan. Alternatively, an employer may enroll in the Secure Choice program and withhold 5% of each employee’s after-tax compensation (up to the $6000 Roth IRA limit for 2020), remitting the withheld amount to Secure Choice. If you have been operating for at least two years with 25 employees, your deadline for establishing an employer-sponsored plan has passed!

At this point, if you haven’t established a company sponsored retirement plan (or enrolled in Secure Choice), then you may face a government assessed penalty of $250 per employee for the first year, and $500 per employee for each subsequent year!

California CalSavers Retirement Plan Deadline was September 30th, 2020!

In California, cannabis companies with more than 100 employees are mandated to have some type of retirement savings plan in place as of September 30th, 2020.

California cannabis companies that are unaware they can legally offer retirement benefits to employees are now faced with a deadline that, if not met, could be detrimental to their business. Our cannabis 401(k) Plan partners confirmed, directly with the CalSavers Retirement Savings Program, that cannabis companies are not exempt from the state mandated retirement savings program requirement.

Effective September 30th, 2020 all California businesses with 100 or more employees, regardless of industry, are required to implement a retirement plan for employees or sign up for CalSavers. Failure to comply with the new mandates could result in steep penalties. For cannabis employers with more than 50 employees, the deadline is June 30, 2021; for cannabis employers with five or more employees, June 30, 2022.

The Nation-wide Safe Harbor Deadline is October 1st!

The IRS deadline for starting a Safe Harbor 401(k) plan is October 1st (any year). If missed, this deadline can be costly for business owners.

While a safe harbor 401(k) plan is similar to a traditional 401(k) plan, it is not subject to the complex annual nondiscrimination tests that apply to traditional 401(k) plans. Prior to October 1st, cannabis companies still have a chance to put a 401(k) Plan in place to maximize retirement savings, tax deductions, and tax credits for the fiscal year starting January 1st.

Safe harbor 401(k) plans allow cannabis business owners and employees that are considered highly compensated to contribute up to the total annual IRS contribution limit of $19,500 (plus $6,500 for catch up contributions)! If a safe harbor 401(k) plan isn’t implemented by the October 1st deadline you won't be able to maximize salary/employee deferral contributions for the fiscal year, and will need to wait another year.

Cannabis Companies Seeking a 401(k) Plan for January 1st Should Start Looking in October!

In order to put a company sponsored retirement plan in place for the 2021 year and offer open enrollment to employees on January 1st, business owners should start the process in advance (generally in October)!

It is 100% legal for cannabis organizations to sponsor retirement plans like 401(k)s and Cash Balance Plans. That being said, other barriers do exist, timing being one of them. Finding a custodian/banking institution that will accept payroll contributions while also having the technology and relationships to send those contributions off for investing is one of the main stumbling blocks. This is an extremely complex process which the majority of large financial institutions are either unwilling or not capable of doing. With the Leading Cannabis 401(k)® plan and the Leading Cannabis Cash Balance plan, cannabis business owners can have the peace of mind that their money, and that of their employees, is invested safely and timely.

As we come across more deadlines for cannabis companies we’ll be sure to detail them here!

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