What began in 2018 as a pilot program, CalSavers — a state-sponsored retirement savings program that requires certain-sized businesses to offer employees the option of participating in a plan — is now entering its second phase of a three-year tiered approach to registration. Currently, businesses with more than 50 employees have until June 30, 2021, to implement CalSavers or an equivalent qualified retirement program that satisfies the mandate. Eventually, employers with as few as five employees will be required to comply but these employers do not need to wait for their designated deadline and are encouraged to join sooner rather than later.
The program is designed to help the nearly 7.5 million private-sector employees in the Golden State who work for a business that does not offer a retirement plan.
What is CalSavers?
For now, CalSavers is a Roth individual retirement account (IRA) similar to programs started in Oregon (OregonSaves) and Illinois (Secure Choice) that is designed to give millions of workers in the Golden State who lack access to an employer-sponsored qualified retirement plan* a chance to save for the future. It is a portable plan that will have oversight from a public board of directors. In July 2019, CalSavers also will offer traditional IRAs. The difference between the two: Roth IRAs invest post-taxed earnings and withdrawals aren't taxed, while traditional IRAs invest pre-tax earnings and withdrawals will be taxed as income.
*A qualified retirement plan includes a 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b).
Employer requirements, registration deadlines, and penalties
Eligible employers must first register their business, and then once registered they have one year before the mandated deadline for their size business to implement CalSavers, if the business does not already have a qualified plan in place. The implementation deadlines are as follows:
- Sept. 30, 2020 (passed): Businesses with 100-plus employees
- June 30, 2021 (passed): Businesses with 50-plus employees
- June 30, 2022: Businesses with five-plus employees.
Employers also will:
- Not be able to make contributions
- Submit employee contributions
- Incur no fees to facilitate the program
Even though there is no fee to register for the program, employers could face financial penalties for not having a retirement savings plan available for eligible employees to join. 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 also must factor in some investment of time on their part once they do register for the program, including setting up an account and then managing the account. Account setup includes such tasks as creating a payroll list to enroll employees, designating a payroll service provider – employers can use the one they have, if applicable – and transmitting payroll to a third-party administrator determined by the board of directors. Account management duties require employers to submit contributions (which means having a detailed list of what each employee’s contribution rate is) and adding new employees when necessary.
Do businesses have to use the state-sponsored program?
No. Registering for the CalSavers program is one way to fulfill the requirement that every qualified employee in California have access to a retirement plan. Businesses can also establish their own employee retirement plan, such as a 401(k) to satisfy this requirement. You should consider all available options before deciding, including researching retirement plan solutions through an industry-leading service provider such as Oasis.
In CalSavers, employees gain a portable plan that follows them from job to job and enables them to opt out and in at any point. If employees do not act within 30 days of notification once an employer registers for the program, they will be automatically enrolled at the default savings rate.
Employees should know:
- Contributions will be made through payroll deduction
- The default savings rate is 5 percent of gross pay
- They have option to customize their plan and choose a different rate and change that rate at any time
- They can opt back in to the program at any time
Why are California and other states sponsoring their own retirement plan?
America faces a retirement crisis, as many people find themselves financially unprepared for their non-working retirement years. In response, states such as California have begun establishing their own retirement plans.
The National Institute on Retirement Security (NIRS) sponsored a 2015 report that found the average working U.S. household has virtually no retirement savings. Some of the numbers from the NIRS research included a median retirement account balance of $2,500 for all working-age households and $14,500 for near-retirement households. Additionally, 62 percent of households age 55-64 hold less than a year's worth of income. A worker should have between five and eight times their annual salary saved for retirement by age 67, financial experts recommend.
What are the differences between state-run IRAs and 401(k) plans?
A state-run sponsored IRA is one way to satisfy requirements and help employees save for retirement. However, it's in businesses’ best interest to compare it with other financial options and decide which option best fits their needs and those of their employees.
The chart below shows key characteristics of a state-run IRA compared to a 401(k) plan, which Oasis offers. The biggest differences are the option for a company to match a portion of savers' contributions, and the maximum amount employees can contribute.
(Offered by Oasis)
|Company Match Option||No||Yes, at employer’s discretion|
|Tax Credits for Opening New Plan||No||Up to $5,000 per year for the first 3 years|
|Employer Tasks||The employer processes payroll contributions, updates contribution rates, adds newly eligible employees, etc.||Oasis is the plan administrator|
Frequently Asked Questions
Who is exempt from the California retirement plan mandate ?
As of June 30, 2021, employers exempt from the CalSavers program are those with less than 50 employees, but only temporarily. As of June 30, 2022, employers exempt from the program are those with less than five employees. These requirements and deadlines apply to private-sector businesses only. The CalSavers website includes more details about exemptions, including employees under the age of 18, religious organizations, and more.
Can I withdraw from CalSavers?
Eligible employers cannot withdraw from the program once registered unless they are doing so to establish their own qualified retirement plan. Employees may choose to opt out of the program at any time if they don't want to participate.
Do California employers have to offer a retirement plan?
California employers that meet certain requirements must offer a retirement plan by a specific date — either a plan through the state-sponsored CalSavers program, or by establishing their own qualified retirement plan: 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b).
Is CalSavers a Roth IRA?
The CalSavers program is a Roth IRA, meaning that post-tax earnings are invested and eligible withdrawals aren't taxed. There is an option for employees to convert their contributions to a traditional IRA (pre-tax earnings invested and withdrawals are taxed as income), which they can do on the CalSavers website.
Can I register for CalSavers at any time?
Eligible employers can request to register at any time, as long as they meet the specified deadlines for either beginning to offer their own qualified retirement plan or registering for the CalSavers retirement program.
How much does the CalSavers program cost employers?
There is no fee for employers to participate in the CalSavers program.
How is the size of my business determined?
Eligibility for the program is based on your average number of employees throughout the year. According to the CalSavers website, this number is calculated by averaging the number of employees you report to the Employment Development Department on your previous four DE9C filings.