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Are you familiar with the CalSavers retirement plan mandate? It was designed to help private workers in the state of California start building a nest egg, since many employees will have little in the way of savings when they are ready to retire. It also provides employers with a simple way to offer employees access to a retirement savings plan.
Fast facts about CalSavers
- The original legislation passed in 2016, and it is California’s state-sponsored retirement plan
- If an employer is not already offering employees access to a qualified retirement plan, such as a 401(k), they are required by law to offer CalSavers
- Plans are funded by employee savings and there are no fees or employer contributions
CalSavers is also a state law, which means that if an employer doesn’t already offer a qualified retirement savings plan, they must offer this plan. But what should you do if you are just becoming familiar with California’s mandate? In this business owner’s guide, we’ll get into more details about CalSavers, how it works, and what the requirements are.
Why are state-sponsored plans becoming popular?
Employer-sponsored retirement plans are gaining traction across the US for several reasons. On one hand, with food and fuel prices rising, Americans working in the private sector are struggling to pay for their basic needs. While employees realize that having an income for post-work life is important, it can be challenging for them to make this a priority.
There’s also data that suggests that millions of Americans are reaching retirement age with no savings to speak of. In response, some states are passing legislation to address these shortcomings. Programs like CalSavers are one of a handful of state-mandated retirement plans that are being introduced in the US. In recent years, programs have started in states including New York, Colorado, Connecticut, Maryland, and Virginia, just to name a few.
Let’s find out more about California’s plan.
What is CalSavers?
In a nutshell, if a California employer does not already offer workers access to a qualified plan, the law requires them to participate in CalSavers if they have one or more eligible employees on the payroll.
In fact, CalSavers is the first state-run retirement savings program for private sector workers to come into existence in the US, per the California state treasurer’s office.
Am I subject to the mandate if I already offer a plan?
If you already offer a retirement program, you are not required to participate in CalSavers. On the flip side, if you have one or more employees and don’t currently offer access to retirement benefits, per California law, you must join CalSavers. For those keeping score, there are no employer fees, and when adopting CalSavers, you are not required or legally able to make contributions to employee accounts.
How do you know if you qualify for an exemption? If you offer one of the following benefit plans, it’s likely that you don’t have to look into CalSavers.
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You can also view this information in the “Determine Mandate” section in this employer resource on the CalSavers website.
Not sure CalSavers is the right fit?
If you are trying to decide how and what type of retirement plan to offer your employees, our small business 401(K) guide can help you figure out what makes the most sense for your company. The good news is that no matter what path you choose, there are retirement savings options for every company.
When did California businesses have to meet the deadlines?
Since becoming law in 2016, CalSavers has had several registration deadlines, and there are future dates that employers may want to keep in mind.
- Originally, California employers with five or more employees were required to provide access to a qualified savings plan (or offer CalSavers) by June 30, 2022.
- The June 2022 deadline was part of a three-year rollout that began in 2020 with a retirement plan mandate for larger employers. Note: If an employer’s mandated deadline was one of the following dates: September 30, 2020, June 30, 2021, June 30, 2022, or December 31, 2022, and they are still not registered with CalSavers or have not offered a plan through a private provider, mandatory compliance enforcement has started. According to the CalSavers website, employers in this group must register immediately or face penalties.
- The next deadline for employers with five or more employees is December 31, 2023. By December 31, 2025, employers with one to four employees must adopt a private plan or use CalSavers.
What penalties are there if a company does not comply?
It’s not fun being the bearer of bad news, but there can be fines if companies choose not to follow the rules. Starting in 2023, employers who have failed to comply with the CalSavers requirements will begin to face penalties ranging from $250 to $750 per employee, depending on how long they have failed to comply with the law
- For example, if an employer fails to provide an employee access to a retirement plan within their first 90 days on the job (CalSavers or a private plan), they will be served a notice
- If the company does not start complying with the law 90 days after being notified — they will pay a penalty of $250 per each eligible employee
- Furthermore, if the employer is found to be in noncompliance after 180 days of being served a notice, they risk an additional penalty of $500 per eligible employee
You can read more about penalties in the legislation.
Do employees have to participate in CalSavers?
For employees, participating in CalSavers is voluntary. To contribute to a plan, an employee must meet the following criteria:
- Be at least 18 years of age
- In addition, they need to fall under the classification of an employee per California law (they receive a Form W-2, Wage and Tax Statement with California wages from an eligible employer)
How do contributions work?
Employees will need to know that they will contribute to savings using automatic payroll deductions. CalSavers is a Roth IRA plan. In 2023, per the IRS, participating employees are allowed an annual contribution limit of $6,500 ($7,500 if age 50 or older).
In terms of the amounts being deducted for savings, employees should know that if they don’t make any adjustments, the standard CalSavers savings rate in their account will be 5% of their gross pay, which is automatically deducted from their paycheck on an after-tax basis.
Enrolled workers can log into their account and change their contribution rate whenever they like. Note: if they make no changes, there’s an “auto-escalation” rate that kicks in. This starts at 1%, with a maximum savings rate of 8%.
Workers can opt out at any time. Those considering whether CalSavers can help them save will want to know that their plan is portable and belongs to them. This means that if they leave their current job to work for another company, they can take their IRA with them.
More resources for California employers
Both employers and employees can benefit from retirement benefits
Offering your employees access to retirement savings, whether through a state plan like CalSavers or a private provider, can be a “win-win” situation for both employers and employees. Team members can save money that they may use to supplement their income when they retire. Employers can use savings plans to attract and retain top job candidates and performers. If you have questions about picking a retirement plan, the OnPay benefits team can help!
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Jon Davis is the Sr. Content Marketing Manager at OnPay. He has over 15 years of experience writing for small and growing businesses. Jon lives and works in Atlanta.