By June 30, 2021 employers with more than 50 employees are required to have a retirement plan in place for workers. This could be either offered through a private-market option such as 401K, a SEP IRA or through the free state-run CalSavers program.
The reason California put CalSavers in place is because research has proven people are more likely to save for retirement when the money is saved passively through automatic payments.
CalSaver, is California’s retirement savings program for private-sector workers whose employers do not offer a way to save for retirement.
Employers must offer a retirement savings plan. If they do not have one in place already, they must offer their employees CalSavers. If a retirement savings program is not offered, employers may face fines.
CalSavers plan gives employers an easy way to help their employees save for retirement, with no employer fees, no fiduciary liability, and minimal employer responsibilities.
It enables employers to automatically help workers save in a Roth IRA. Such as a 401K plan, employees enrolled can choose their own contribution rate, stick with the default contribution or opt out; they can also select investment funds or use the default target date fund.
Deadlines to be met:
| Business Size | Deadline |
| 5 to 49 Employees | June 30, 2022 |
| 50 to 99 Employees | June 30, 2021 |
| 100+ Employees | September 30, 2020 |
Employers, including non-profits, with 50 or more employees that don’t sponsor a retirement plan must either start a new 401(k) plan or register with CalSavers by June 30, 2021.
Unless employers are offering a qualified private-market alternative like a 401(k), as an employer, can register through the CalSavers website. After registering, you are required to add employees within 30 days of completing the registration.
If an employer already sponsors a retirement plan, they are to file an exemption on the CalSavers site. If you receive a notification from CalSavers and believe you are exempt, report your exemption on the site.
Some of the qualified private-market alternatives include 401(k) plans; 408(k) SEP plans; 408(p) SIMPLE IRA Plan; 401(a) Qualified Plan, including profit-sharing plans and defined benefit plans; and 403(a) or 403(b) Annuity Plan, among others.
There are no fees or other costs for employers.
Employees who enroll do pay a small percentage of their balance as an annual administration fee.
What employees can expect from CalSavers:
- Employees are not required to participate in the plan. Employees will receive a notice 30 days before they are automatically enrolled in CalSavers. Employee payroll deductions are after-tax, automatic but adjustable, even if they opt-out, though they have to re-opt out every two years, if not interested.
- Employee deductions are automatically set to 5% of an employee’s gross pay. Employees can adjust their contributions setting to a higher or lower percentage of their pay at joining, the standard deduction of 5% from gross pay will be automatically deducted from their payroll, with an annual auto-escalation of 1% until it reaches 8%.
- Their contributions will be invested in a Roth IRA within a target date fund, which is the anticipated retirement date. Savers will pay between approximately 0.825% and 0.95% of their balance annually, depending on investment choices, in AUM (Assets Under Management) fees which is taken from the balance as an administration cost.
- CalSavers is a Roth IRA program. A Roth IRA comes with an annual contribution limit: in 2021, the limit is $6,000 if under age 50 or $7,000 if age 50 or older. High-earning employees are subject to a reduced contribution limit.
- CalSavers is portable. If an employee changes jobs, they can keep their CalSavers account. It’s designed to move with the employee throughout their working life.
- Employee’s investment options. The default investment option for the first $1,000 payroll contributions to the state retirement program is a money market fund and the subsequent contributions will be deposited in a target-date fundconsistent with their birth date. A few other investment options exist, as well.
Unless participants select otherwise, initial contributions are automatically invested in the CalSavers Money Market Fund. A money market fund invests in low-risk investments such as Treasury securities and often emphasizes safety over profits. After thirty days, contributions are allocated to a CalSavers Target Retirement Fund based on age and other factors.
CalSavers is an affordable, convenient way to handle retirement savings for employees, but there are other options. There are many retirement providers out there which may offer a range of products, including retirement savings plans such as IRAs, 401(k)s, defined benefit pensions, and more. CalSavers though, is targeted and somewhat custom-built around the needs of small to medium sized businesses.
Here is an example of an option for 401k with a basic differentiation chart between CalSavers and an estimate:
| CalSavers | Estimated | |
| Plan | Roth IRA | 401(k) |
| Employer Match? | No | Yes |
| 2021 Maximum Contribution | $6,000 for individuals under the age of 50 | $19,500 and up to $58k with employer contributions. Contributions are made pre-tax. It has no eligibility restrictions in terms of household income. |
| Fees/Pricing | No Fees for employers | Starts at $49 + $8/month per participant. It may incur tax benefits for both employees and employers. |
| Fees Paid By | Employee | Employer |
| Auto Enrollment | Yes | Yes |
Employees are not mandated to participate, but, all employers in the state with at least five W-2 employees MUST offer a qualified retirement savings plan to their employees. A qualified retirement plan includes a 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b). If an employer fails to offer a plan, they will face fines.
Employers will face penalties if they do not offer either a private pension plan or register with the state plan. Employers will pay a fine of $250 per eligible employee if noncompliance extends 90 days or more after the notice. It increases to an additional $500 per eligible employee if noncompliance extends 180 days or more after the notice.
Retirement plans are key contributors to employee satisfaction and for those of you who do not offer private market plans, CalSavers is an attractive option. Your business will be able to offer an affordable retirement plan that will help you maintain compliance, improve employee retention and better prepare your employees for their retirement years.