The CalSavers Retirement Savings Program is a rudimentary state-run retirement savings program for those working for a privately-owned business. If the business does not offer a retirement savings program and has at least 5 employees, they will be required to enroll in CalSavers.
The idea for this program emerged in 2011 when California was struggling with a budget crisis. Rather than just focusing on their debt-ridden, underfunded pension programs, politicians decided to also involve themselves in the private sector. CalSavers was designed for small business who cannot afford the costs of offering retirement programs to their employees and is supposed to give employers an option to help their employees save for retirement without any employer fees or fiduciary responsibility. CalSavers is a basic plan, and while it may be easy for small businesses to administer, it does have employer requirements.
Here is what SMALL BUSINESS OWNERS need to know about the program:
- Employers will not contribute to funds, manage funds, or have any responsibility for financial advice
- Employers of five or more employees will be required to provide a retirement option, or enable their employees to make an automatic contribution from their paycheck into their CalSavers account.
- Small businesses will be phased into the CalSavers program over the next 3 years
- Employers with over 100 employees are required to participate by September 30, 2020 (extended from June 30 due to the COVID-19 pandemic)
- Employers with over 50 employees are required to participate by June 30, 2021
- Employers with over 5 employees are required to participate by June 30, 2022
- If an eligible employer fails to participate in the CalSavers program within 90 days of the applicable deadline, they will receive a penalty of $250 per employee. If the employer fails to comply 180 days or more after the deadline, they will be penalized an additional $500 per employee.
- Small businesses with fewer than 5 employees, or that already offer retirement savings program options will not be required to offer CalSavers
Here is what SMALL BUSINESS EMPLOYEES need to know about the program:
- The program allows employees to contribute a percentage of their paycheck to a personally owned ROTH IRA account.
- Default savings rate is 5% of gross pay
- Savings rate will automatically increase by 1% each year until your savings rate reaches 8%
- Employee can change rate at any time
- Employees will be auto-enrolled after 30 days and will begin saving through payroll contribution
- Employees can opt out and back in to the program at any time
- The CalSavers account is portable, moving with the employee if they change jobs
- Employees can keep the standard options for savings rates and investments, or choose their own