On June 30, 2022 CalSavers is set to complete its final phase after nearly four years since the program's launch. According to a 2015 study, approximately 7.5 million employees in California alone, had no access to any sort of workplace retirement plan. To tackle that disparity, the California legislature passed the CalSavers Retirement Savings Trust Act (the "Act") in 2017, establishing CalSavers as a state-run retirement savings program for private sector employees. Since the launch of CalSavers's pilot phase in November 2018, employers have been gradually required to comply with the California law—the first wave comprising of businesses with over one-hundred employees, followed by businesses with over fifty employees. Now, employers with five or more employees, when at least one of whom is 18 or older, must register for CalSavers, or sponsor another qualified retirement plan by the end of June 2022.
Since compliance with the Act is mandatory, now is a good time for all California employers to reexamine the mechanics of CalSavers. Employers with five or more employees, whose compliance is due at the end of June, should also take special caution to consider all of their options and plan accordingly.
How much does CalSavers cost?
CalSavers is a program that allows employers to automatically help employees save in a Roth IRA at no cost to the employer itself. Rather, a standard 5% of gross pay will be deducted from the employee's paycheck with an auto-escalation of 1% until it reaches 8%. Once enrolled, employees may remain with the default contribution rate, choose their own rate, or opt-out of auto-escalation. All employee contributions are invested in a Roth IRA within a simple target date fund. Employees will pay between 0.825% and 0.95% of their annual balance in Assets Under Management fees (depending on their investment choices), which will be taken from the balance as an administration fee. The account itself belongs to the employee and therefore follows the employee through any job changes.
How do you register?
Registration is a simple process that can be done at the CalSavers website. After registering, employers have 30 days to provide basic employee roster information, which CalSavers uses to then contact employees directly and provide them all pertinent information. After CalSavers contacts the employees, they will be automatically enrolled after 30 days, though they may opt-out of enrollment at any time. After registration and enrollment, the employers are responsible for deducting and remitting each employee's contributions for each pay period. Employers are also required to add new eligible employees to the program within 30 days of their hire date.
If an employer already sponsors a qualified retirement plan, they can instead file an exemption on the CalSavers website.
Which retirement plans qualify for an exemption?
Per the official website, an employer who sponsors one of the following retirement plans qualifies for an exemption from CalSavers:
- 401(a) - Qualified Plan (including profit-sharing plans and defined benefit plans)
- 401(k) plans (including multiple employer plans or pooled employer plans)
- 403(a) - Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan
- 408(k) - Simplified Employee Pension (SEP) plans
- 408(p) - Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan
- Payroll deduction IRAs with automatic enrollment
Employers should evaluate whether their current retirement plan qualifies for an exemption. Whether qualifying or not, employers must take action by June 30, 2022, to enroll or seek an exemption from CalSavers.
What are the penalties for failing to register?
Any employer who does not otherwise sponsor a qualifying retirement plan and fails to register by the corresponding deadline will receive notice of its failure to comply. If the employer fails to register within 90-days of receiving notice it will be fined $250 per eligible employee. The fine increases to $500 per employee if registration is not completed within 180 days or receiving notice.
