CalSavers Retirement Savings Program
By June 30 2022, all employers with five or more California employees are required to offer a qualified retirement plan to their employees or register with the state option (CalSavers). Fines for non-compliance range from $250 - $750 per eligible employee.
What is CalSavers?
CalSavers, is California’s retirement savings program. The goal of CalSavers is to help ensure Californian workers have a path to financial security in retirement. CalSavers stipulates that employers must offer a retirement savings plan—AND, if they fail to offer one of their own, they must offer their employees CalSavers, the state-operated retirement savings plan (or else face penalties).
How does the CalSavers program work?
CalSavers provides employers a way to set up an individual retirement account (IRA) for each eligible employee. While many retirement savings plans offer more flexibility, CalSavers mandates that plans use default features unless otherwise specified.
employee payroll deductions:
Employee deductions are automatically set to 5% of an employee’s gross pay and employees can adjust their contributions setting to a higher or lower percentage of their pay. Employees can opt-out of the state retirement savings program.
calsavers is a roth ira program.
Employee deductions are placed into a Roth IRA. Roth IRA contributions are not tax deductible and come with an annual contribution limit of $6,000 in 2022 ($7,000 if age 50 or older). Roth IRA contributions are limited or disallowed for high earners, high earning employees may need to opt out of CalSavers or recharacterize their contributions to a Traditional IRA.
employee investment options:
By default, all contributions made in the first 30 days are deposited to the CalSavers Money Market Fund unless an alternate investment option is selected by the participant. After that point, funds and future contributions are automatically allocated to a target-date fund based on age or expected year of retirement, or to a fund the participant chooses.
Is CalSavers mandatory for employers to register?
Enrolling in CalSavers is not mandatory - but after June 30, 2022, all employers in the state with five or more California W-2 employees must offer a qualified retirement savings plan to their employees or face penalties.
What is the deadline for employers to register with CalSavers?
Deadlines to register businesses with more than 100 employees AND 50 employees have already passed. (Businesses of these sizes should register immediately to avoid any additional penalties!)
The deadline to register for businesses with 5 or more California employees is June 30, 2022.
What if an employer doesn’t comply?
Employers that fail to allow eligible employees to participate in CalSavers are subject to a penalty of $250 per eligible employee if noncompliance extends 90 days or more after the notice. If found to be in non-compliance 180 days or more after the notice, the employer is responsible for an additional penalty of $500 per eligible employee.
What are the Pros and Cons of CalSavers for Employers?
CalSavers is better than nothing. But it may lack the flexibility and plan design options that your employees deserve:
While CalSavers offers investment options, its funds only represent a fraction of the open market.
CalSavers charges between 0.825% to 0.95% in asset-based fees that are paid by the plan participants.
CalSavers only offers a Roth IRA option, which for 2022, allows contributions up to $6,000 if you earn $129,000 or less per year ($204,000 if married filing jointly). You can also add catch-up contributions of $1,000 more—up to $7,000 in total—if you are age 50 or older.
Is CalSavers the only option for employers?
No. While CalSavers is an affordable, convenient way to handle retirement for your employees, it’s important to know that you have other options. There are many retirement providers out there, new and old, who offer a range of products, including retirement savings plans such as IRAs, 401(k)s, defined benefit pensions, and more. Let us know if you are interested in a retirement savings plan for your employees and we can guide you in the right direction.
Finding the right retirement savings plan for your company
While we recommend talking to your financial advisor about choosing a retirement savings plan that is right for you, we’ve summarized the key similarities and differences between CalSavers and a traditional 401k/Profit Sharing Plan.
