CalSavers
What employers need to know.
California state law requires employers to participate in CalSavers if they have five or more employees and do not offer a 401(k) plan.
CalSavers Requirements and Restrictions
Employers with 5 or more W-2 employees must offer a retirement savings plan by June 30th, 2022 (according to CalSavers).
Non-compliant employers will be penalized $250 per employee upon the first penalty notice and, if non-compliance persists another 90 days, an additional $500 per employee, for a total of $750 per employee for sustained non-compliance (according to the CA treasurer website).
CalSavers is a Roth IRA and is therefore constrained by Roth IRA contribution limits set by the federal government. For 2022, contribution limits are $6,000 per year and $7,000 per year for ages 50+.
Employers are not allowed to make contributions on behalf of, or as a match to, employee contributions to CalSavers.
Is CalSavers Mandatory?
CalSavers is mandatory for employers
Employers who have 5 employees or more and do not offer a qualified retirement savings plan must enroll in CalSavers.
However, employers can offer a qualified private retirement plan and circumvent the CalSavers requirement so long as they register for the plan by the June 30th, 2022 deadline.
CalSavers is optional for employees
Employees are not required to enroll in CalSavers. Employees are automatically enrolled, however, and must opt-out, not into the CalSavers plan.
Private retirement plans are set up the opposite way where employees must opt in.
Will CalSavers perform as well as a Private Market 401k?
CalSavers is a payroll deduction IRA. Participants’ 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 30 days, contributions are allocated to a CalSavers Target Retirement Fund based on age and other factors.
Private Market 401ks offer a wider variety of structures, investment options, matching and employer contributions, tax-advantaged savings options (a CalSavers contribution is post-tax and is not a tax strategy).
How much time should it take to offer a 401(k) to my employees?
