The CalSavers Retirement Savings Program (CalSavers) is a state-run retirement program that applies to California employers who do not sponsor their own retirement plan for employees. Eligible employees in California who do not have access to a tax-qualified retirement plan through their employer are automatically enrolled in a Roth Individual Retirement Account (IRA) under CalSavers.
The deadline for employers to register with CalSavers has been staggered based on employer size since its effective date of September 30, 2020, which applied to employers with over 100 employees. The next registration deadline was June 30, 2021 for employers with over 50 employees. For employers with five or more employees, the registration deadline is June 30, 2022.
CalSavers Background
Established in 2016 through legislation titled “The CalSavers Retirement Savings Trust Act,” CalSavers was created to offer workers in California a convenient and easy way to save and invest for retirement.
CalSavers is administered by a private-sector financial services firm with oversight by a public board chaired by the State Treasurer. Employees may choose not to participate in the program and may also customize their contribution level and investment choices.
Covered Employers
California employers (both for-profit and non-profit) must participate in CalSavers if they have five or more eligible employees and do not offer an employer-sponsored retirement plan.
To calculate the employee threshold for eligibility purposes, employers should count the numbers of employees reported to the California Employment Development Department on its previous four DE9C filings for the prior year.
Exempt Employers
California employers who sponsor any of the following qualified retirement plans are exempt from CalSavers: 401(k) plan, 403(b) plan, a SEP plan, a SIMPLE IRA plan, a pension or defined benefit plan or a payroll deduction IRA with automatic enrollment.
Exempt employers are required to report their exemption to CalSavers by logging into the site here.
Eligible Employees
To be eligible, employees must be at least 18 years old, have the status of an employee under California law, receive a W-2 with California wages from their employer and have a Social Security or taxpayer identification number. Employees have 30 days to opt out initially but can always enroll at a later time.
Multistate employers who employ five or more employees in California (as outlined in the paragraph above) are required to either sponsor a workplace retirement plan or register for CalSavers.
Employees are eligible to participate in CalSavers as of their date of hire. There are no minimum requirements based on hours worked or tenure with their employer.
Employer Obligations
Employers are required to initially enroll their eligible employees and remit payroll deductions to CalSavers for each employee who does not affirmatively opt out of participation.
Employers do not pay any fees for participating in the program and are prohibited from contributing to employee accounts at this time.
Employers must remain neutral and not encourage or discourage employees from participating in CalSavers. Further, employers are not subject to fiduciary liability to employees regarding investment performance or other aspects participation in CalSavers program since they are not the plan sponsor.
Penalties for Noncompliance
If employers do not currently offer a retirement plan to employees or do not register with CalSavers and facilitate participation by their eligible employees in the program, they may be subject to penalties by CalSavers and the Franchise Tax Board. The penalty is $250 per eligible employee for failure to comply after 90 days of receiving the CalSavers notification, and $500 per eligible employee if noncompliance extends to 180 days or more after the notice.
CalSavers Retirement Plan
The default employee contribution for CalSavers is 5% in the first year and increases by 1% each year to 8% in the fourth year. Employees may customize their contribution levels and investment choices at any time. The maximum employee contribution limit for Roth IRAs is $6,000 for employees under age 50, and $7,000 for those age 50 and older. Note that Roth IRAs are subject to income limits under IRS rules so eligible employees should consult with their tax adviser when deciding whether to opt out of participating in CalSavers.
Click here for more information on CalSavers investment options and here for a CalSavers savings calculator.
Next Steps for Employers
California employers who do not sponsor a retirement plan are advised to:
- Register with CalSavers by clicking here and using your federal Employer Identification Number or Tax Identification Number, as well as the access code provided in the CalSavers notice.
- Provide basic employee roster information to CalSavers through the portal within 30 days of completing CalSavers registration.
- Remit payroll deductions to the program within seven days of deducting the contribution amount from the participating employee’s paycheck. Note that CalSavers will advise employers which of their employees have not opted out of participation in the program.
- Upload new hire employee information to the CalSavers portal within 30 days of their hire date.
- Connect with your payroll service provider for additional compliance assistance.
Offering a workplace retirement plan to employees, even for small employers, continues to be an effective recruitment and retention tool, particularly during this recent tight labor market. For employers considering offering a workplace retirement plan to become an exempt employer under CalSavers, Risk Strategies can provide recommendations for retirement plan service providers.
Reach out to your Risk Strategies account team for more information or with any further questions.
