What is CalSavers?

CalSavers is California’s state-mandated retirement program that provides business owners with a plan option that helps them stay compliant with the law while enabling their employees to save for their future.

The program can be a great jumping off point for employers that want to get started with a retirement plan but don’t want to take on the full load of management. And on the flip side, CalSavers could end up feeling too limiting for businesses that want to grow and scale significantly, and need more flexible features, which are what private-run plans like 401(k)s and SIMPLE IRAs offer.

Key Deadlines and Timeframe

As the first state to pass and establish a state-run retirement program, CalSavers started rolling out plan deadline phases starting in 2019. As of 2022, all eligible businesses with five or more employees must either register for CalSavers, or sign up for a private-run plan such as a 401(k) or SIMPLE IRA. Employers that fall under the threshold have some flexibility as participation is voluntary, but they have 36 months to register for the program once they hire their fifth employee. Ongoing responsibilities such as maintaining paperwork and contributions are a continuous expectation–they don’t have a one-time yearly deadline or anything of the like.

Who is Required to Participate in the CalSavers Program?

If you’re a business owner in California, you’ll have to participate in CalSavers if you:

  • Have 5 or more employees
  • Do not offer a qualified retirement plan currently

It’s important to remember that this mandate applies across all industries and that both part-timer and full-timers count towards the employee threshold.

Attributes and Directives Employers Need to Know 

Mandatory Participation

CalSavers participation is mandatory unless you sign up for a qualified plan and claim exemption. Make sure to comply as soon as you can to avoid costly penalties!

Automatic Enrollment

Employees are automatically enrolled into their work’s CalSavers program at a 5% contribution rate. They can opt-out of the plan entirely, or change their rate, allowing them more autonomy.

Employee-Owned Roth IRAs

CalSavers utilizes Roth IRA accounts, meaning that they’re entirely owned by the employees, contributions are made with after-tax dollars, and employers have no control over the funds and aren’t able to contribute (which may be a downside for owners who want to ensure they’re providing a truly comprehensive benefit).

State-Managed Investments

CalSavers has a pre-picked, state-managed set of investments for employees to choose from. For businesses that are looking for broader options and income possibilities, explore other plan choices and compare the offerings to CalSavers before making a decision.

Payroll Deductions

This state-run option provides a CalSavers account, which is where contributions are sent once they’re taken out of employees’ paychecks. You’ll have to integrate CalSavers deductions into your payroll system.

Employee Information Submission (Within 30 Days)

After registering for the program, employers have 30 days to submit employee information, including names, contact details, and social security numbers or ITINs.

New Hire Enrollment (Within 30 Days)

Employers must enroll new employees in CalSavers within 30 days, and they can choose to opt-in or out.

Neutrality and Non-Interference

Neutrality is crucial here–employers can’t encourage or discourage employees from participating in the retirement plan. Employers are there to just facilitate and help educate when necessary.

Are there Penalties for Noncompliance?

In short, yes, there are penalties for noncompliance. California early established themselves as one of the stricter states that will enforce penalties for not registering or claiming exemption on time. Employers can face a $250 fine per employee after 90 days on noncompliance, and this will go up to another $500 per employee if they remain noncompliant after 180 days. This means employers can pay up to $750 per person in fines, so make sure to get everything done as soon as you can if your business is required to!

What are Other Plan Options Besides CalSavers?

While CalSavers may meet the minimum requirements, it isn’t the only option. Business owners have multiple plan choices to choose from to augment their companies more effectively.

401(k) Plans

401(k)s are the most popular option for business owners, offering higher contribution limits than CalSavers, a profit-sharing option, plan design customization, and even the opportunity to get tax credits to help offset setup and maintenance costs. They’re a powerful option to keep employees engaged and productive without adding complexity or high costs to your business.

SIMPLE IRA

SIMPLE IRAs are very basic plan options for businesses with 100 employees or less. While it allows for employer contributions, it has lower limits and fewer customization options than other plan choices. It can be an ideal option for businesses that are sticking to a tighter budget or want very simple paperwork and maintenance processes.

SEP IRA

A SEP IRA is designed to fit sole proprietors or very small businesses. Because only employers can contribute, employee engagement and savings potential is very limited, but the plan type offers significant tax advantages and more control for owners.

What Do Employers Need to Do Now to Prepare for and Participate in CalSavers?

Here’s what to keep in mind as you prepare to integrate a retirement program into your business:

Count Every Employee

Remember that even part-timers or seasonal workers count as employees, so it’s important to confirm your headcount early.

Confirm CalSavers is Right for You

Depending on your needs and goals, you might want to explore other plan providers that can offer a 401(k), 403(b), SIMPLE IRA, etc., before settling on the state-run option.

Register or Certify Your Exemption

Even if you already have a plan, you’re not automatically exempted. So, you’ll have to visit the CalSavers site and let the state know through there.

Set Up Deductions & Maintain a Schedule

Be sure to process deductions on time, enroll new hires accordingly, and educate your team as mandate updates happen.

Conclusion

CalSavers aims to simplify retirement by getting employers on track with compliance and making savings more accessible for employees. Again, if you’re not ready for a 401(k), CalSavers is a good starter’s option, but you’ll want to confirm that it meets your investment, control, and flexibility needs before you register for it. If you need a more robust plan right off the bat, Ubiquity is just one of the providers that can help you. Even though the deadline has passed and penalties are going into effect, our customizable, flat-fee 401(k) solutions can help you get back on track and ensure your team starts building the future they want.