Mar 31, 2022
CalSavers is a retirement savings program for private sector employees whose employers don’t offer a retirement program. More specifically, it gives employees the opportunity to defer their wages, through payroll deductions by the employer, to a state-managed IRA program.
California law requires private sector employers with at least five California-based employees, at least one of whom is at least 18 years old, and don’t sponsor a “qualified retirement” plan, are required to register for CalSavers which is an automatic enrollment payroll deduction IRA program. With more than 240,000 small businesses subject to the mandate, CalSavers reports the program has registered more than 20,000 employers since the statewide launch in July 2019.
Qualified retirement plans include:
- 403(a) Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan.
- 408(k) Simplified Employee Pension (SEP) plans.
- 408(p) Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan.
- 401(a) Qualified Plan (including profit-sharing plans and defined benefit plans).
- 401(k) plans (including multiple employer plans or pooled employer plans).
- Payroll deduction IRAs with automatic enrollment.
An employer that offers a tax-qualified retirement plan is not eligible and it's employees can not participate in the CalSavers Program. California employers that do not offer a tax-qualified retirement plan are required to register with CalSavers by certain deadlines, based on number of employees.
Employers with five or more employees must register by June 30, 2022.
Exempt employers may, but are not required to, inform the CalSavers Administrator of their exemption.
Important Notes
- The program has no employer fees, no fiduciary liability and minimal employer responsibilities.
- Within 30 days of registration, employers must provide CalSavers with certain contact and identifying information for eligible employees, and must also set up a “payroll deposit retirement savings arrangement,” through which employers can remit employees’ contributions to the CalSavers Trust.
- Employee opt out: After the employer registers, the CalSavers Administrator delivers to all eligible employees an information packet describing the program and giving employees 30 days to opt out.
- Contributions: It is a portable ROTH IRA that takes an automatic percentage of the employee's income for contributions. Contributions can be set by the employee but will automatically grow each year by 1% until the employee is contributing 8%. In 2022, the maximum amount that can be contributed is $6,000 per year ($7,000 for ages 50 and above) as long as the employee is making $6,000 per year in wages. Employees may use this tool to help determine your contribution limits based on your Modified Adjusted Gross Income and tax filing status.
- Fees: There is a “Program Administrator Fee – State”, “Program Administrator Fee – Administrator”, and “Underlying Fund Fee” associated with the CalSavers plan. The total of these fees come to 0.825% – 0.95% and that will be deducted annually from your account. This means that the employee will pay $0.83 – $0.95 per year for every $100 in their account, depending on investment choices.
- Employer penalties for non compliance: The proposed fines range from $250 per eligible employee if an employer remains noncompliant after 90 days of being served notice, escalating to $500 per eligible employee if noncompliance reaches 180 days or more after the notice.
Employers can register at the CalSavers website, where they can also access Frequently Asked Questions (FAQs) about registration, enrolling employees and more.
Alternatively, small businesses can also establish their own employee retirement plan, such as a 401(k) or SIMPLE IRA, to satisfy this requirement. Employers should consider all available options before deciding, including researching retirement plan solutions.
Additional Resources
Introduction to CalSavers Webinars
CalSavers Overview for Employees
