Previously enacted in 2016 via California Senate Bill 1234 (SB1234), CalSavers is a state-run program that aims to provide the majority of California employees with easy access to a retirement savings program by offering a completely voluntary, low cost, portable retirement savings program with professionally managed investments and oversight from a public board of directors and the state Treasurer. The deadline for employers to register with CalSavers had been staggered based on employer size since its original effective date of September 30, 2020, which applied to employers with more than 100 employees. The second registration deadline was June 30, 2021, for employers with 50 or more employees. Finally, employers with five or more employees, now will have to register by June 30, 2022.
According to SB1234, both for-profit and non-profit employers located in California must participate in the CalSavers program, if they employ five or more eligible employees and do not currently offer a company-sponsored retirement plan. The requirement to participate is based on the employer’s average number of employees throughout the year. This number is calculated by averaging the number of employees reported to the Employment Development Department (EDD) on an employer’s previous four quarterly DE9/DE9C filings from the prior calendar year.
Once eligibility has been determined, employers will need to register with CalSavers to get started. Once registered and the company’s state plan has been established, employers must enroll their eligible employees and submit the instructed payroll deductions to CalSavers for each employee who does not opt out of plan participation. The employer is not burdened by any fees to CalSavers by opting into their retirement plans. However, with the plans being administered by the state, employers are not allowed to contribute to any CalSaver accounts. Employers are not accountable for answering questions about the program, managing investment options, processing distributions, or giving investment/tax advice to employees. Employees are instead responsible for maintaining their own accounts directly with CalSavers.
Employers are not required to register with CalSavers program if they instead offer their employees a qualified retirement plan. Qualified retirement plans include:
- 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
However, even though plan enrollment is not required by exempt employers, they still must create an account with CalSavers in order to report their exemption. Employers who need to register and request an exemption can navigate to this site and work directly with CalSavers to get setup.
In order to be eligible for the CalSavers Retirement program, employees simply have to be 18 years old, receive a W-2 with California wages from their employer, and possess a Social Security or taxpayer identification number. There are no minimum service requirements based on hours worked or time spent with the employer, and employees are able to begin participating in the program as of their initial date of hire.
Penalties for Failing to Comply
Employers who do not offer a qualified retirement plan or fail to register with CalSavers and facilitate participation by eligible employees, may be subject to fines by CalSavers and the Franchise Tax Board. Employers who do not comply after 90 days of receiving the CalSavers notification may be penalized with a $250 fine per eligible employee. If non-compliance continues after 180 days, the employer may be fined an additional $500 per eligible employee.
Next Steps for Employers
Those employers who will now fall under the legislation requirements of five or more employees and do not currently offer a qualified retirement plan, will want to register with CalSavers and get setup in the program, prior to the June 30, 2022 compliance deadline. For employers currently offering company-sponsored plans, it is recommended that they review their plan documentation to confirm if the plan qualifies for exemption from the CalSaver requirements and that they register with the program to submit an exemption and provide any requested substantiating documents to the state.