What to Do if You Miss the CalSavers Deadline
The June 30, 2022, CalSavers enrollment deadline has passed. California businesses that have at least five employees and that have not yet enrolled in CalSavers or adopted a custom retirement savings plan now face penalties beginning at $250 per eligible employee if the business remains non-compliant for 90 days after it receives a violation notice from the State.
California small businesses that have missed the deadline can still save on their taxes for this year if they act quickly and choose to either opt in to the CalSavers 401(k) or, alternatively, start their own private 401k retirement plan. In many cases, a customized, low-cost 401(k) savings vehicle may provide more tax benefits, greater savings, and increased employee satisfaction than the state-run CalSavers program.
How will California enforce penalties on small businesses that have missed the CalSavers deadline?
Legal challenges to the CalSavers Law have all been dismissed or denied, which leaves California businesses with the option of enrolling their employees in CalSavers or adopting their own 401(k) plan. Companies that fail to do so will be fined by the CalSavers Retirement Savings Board, which is partnering with the State’s Franchise Tax Board (FTB) to levy penalties on non-compliant businesses.
Why might a small business choose a custom retirement plan over CalSavers?
Although it may seem simpler for a small business to choose the default CalSavers option, doing so may forfeit significant benefits that are available as part of a custom plan.
There are important differences between the state-sponsored plan and a Ubiquity 401(k). A 401(k) solution provides employers with the opportunity to maximize their contributions and tax savings while helping their employees save for the future. With a 401(k) plan you can contribute 3 times more than with an IRA, and there are other important customization options that a 401(k) plan enables.
Consider the following, for example:
- A 401(k) allows employees to contribute more than three times the contribution limit of the CalSavers option.
- Federal legislation known as the SECURE Act incentivizes small businesses to establish qualified retirement plans by giving them up to $16,500 in tax credits.
- Unlike CalSavers, which charges employees an asset-based fee for administering their retirement savings, a private plan can be established on a flat-fee basis, which will give employees greater fee savings.
What other important differences between the state run program and a 401(k)?
There are several critical differences between these plans. Beyond the extra savings any participant can build with a 401(k), employer contributions are allowed as well, meaning small business owners can use this contribution to reward and incentivize employees. This includes an additional employer contribution of up to $40,500 to their own accounts. This chart lays out even more differences between the two types of plan:
Choose the better plan for your small business and your retirement. Open a Ubiquity 401(k) to satisfy the mandate, save more, lower your taxable income, earn business tax credits, and retain top talent. Call 866.634.6116 or schedule a free consultation with a retirement specialist.