What You Need to Know About CalSavers
California’s Mandatory Retirement Savings Plan
Updated Sept. 4, 2022
A substantial amount of American households have no retirement savings, and California implemented its own solution.
Here’s everything you need to know about the CalSavers mandatory retirement savings plan for businesses with 5 or more employees.
This law affects about 5-7 million Californians who work for an employer without a pension or 401(k) account.
CALIFORNIA CALSAVERS MANDATORY RETIREMENT PLAN
It’s called SB-1234 (easy to remember) and you can read the full text of the Bill here.
The CalSavers program is a state-managed Individual Retirement Account (IRA).
The savings program has professionally managed investments with oversight from a public board of directors.
WHAT EMPLOYERS NEED TO KNOW
Effective June 30, 2022, all employers with 5 or more employees, who don’t already offer a qualified retirement plan, must participate in CalSavers.
The good news for employers, they do not have to administer the program, nor contribute financially. They will not have any liability for an employee’s decision to participate.
However, they have to register by June 30, 2022, and advise their employees of their options.
If the employer uses a payroll service such as ours, they need to make sure they have all of the information they need to start withholding from employees IF the employees do not opt-out.
If you already offer an employer-sponsored, qualified retirement plan, you are exempt from this requirement.
The penalties for non-compliance, according to CalSavers:
Per Government Code Section 100033(b), each eligible employer that, without good cause, fails to allow its eligible employees to participate in CalSavers, on or before 90 days after service of notice of its failure to comply, shall pay a penalty of $250 per eligible employee if noncompliance extends 90 days or more after the notice, and if found to be in noncompliance 180 days or more after the notice, an additional penalty of $500 per eligible employee.
If an employer adds a 5th employee during 2022, or hired or fired anyone, they must communicate with CalSavers to make sure they’re in compliance. CalSavers uses an average to calculate which employers must comply (based on the last four DE9s filed with the EDD).
Per state regulations, employer eligibility is based on an 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 on an employer’s previous four DE9/DE9C filings from the prior calendar year.
WHAT EMPLOYEES NEED TO KNOW
CalSavers provides a low-cost portable retirement savings plan through your workplace.
If your employer has at least five employees and doesn’t offer a qualified retirement plan, you are eligible to enroll in the program.
The program is voluntary. Employees will have the option to enroll once a year during open enrollment – and they will also have the option to opt out.
All employees of a participating employer are eligible as long as they are at least age eighteen and have the status of an employee under California law. There are no minimum requirements based on hours worked or tenure with their employer.
Employees are eligible to participate in CalSavers from the first day they are hired. Participating Employers are required to upload them to the portal within 30 days of their hire date.
If workers elect to participate in the program, they would automatically have a small percentage of their pay deposited into their CalSavers account.
The cost to employees comes out to about $0.83 – $0.95 per year for every $100 in the employee’s account (depending on the investment selection). This covers the costs of administering the program and fund expenses. The fee is automatically taken out of the account balance.
From the Calsavers website:
“The State of California created CalSavers to ensure that all Californians have access to a workplace retirement savings program by providing a simple, portable, low-cost way for workers to invest in their futures.“
- You contribute to a Roth Individual Retirement Account (IRA) that belongs to you.
- Your participation is completely voluntary: you can opt out or back in at any time.
- You can stick with the standard options for savings rates and investments, or you can choose your own.
- You keep your account even if you change jobs.
- Your savings rate will automatically increase by 1% each year until your savings rate reaches 8%, unless you choose otherwise.
FOR THE SELF-EMPLOYED
From the CalSavers site on Self-Enrollment:
1. What do I need to enroll?
To enroll as an individual (not through an employer), you must:
- have earned income.
- be at least age eighteen.
- have a bank account from which you will make contributions, and
- provide some personal information, including full legal name; Social Security number or Individual Taxpayer Identification Number; date of birth; physical U.S. street address; designated email address; and any other information reasonably required by the Program for purposes of administering the Program.
- either make an initial contribution of at least $10 from your bank account or establish a recurring contribution or payroll direct deposit for a minimum of $10 per quarter.
You can join the program today on the Saver website.
Before your CalSavers account is established, you will be asked to acknowledge that:
- you understand the eligibility requirements for the Roth IRA contribution you are making, and you qualify to make the contribution;
- you have received a copy of the Program Disclosure Booklet, the Custodial Account Agreement, Disclosure Statement, and Financial Disclosure;
- you understand that the terms and conditions that apply to a Roth IRA are contained in the Custodial Account Agreement and you agree to be bound by those terms and conditions; and
- you understand that you may revoke your Roth IRA without penalty within seven days from the date you receive the Disclosure Statement by mailing or delivering a written notice to the Program administrator.
If an employer does not offer a qualified retirement plan, they are mandated to enroll in the CalSavers plan to allow their employees to save for retirement.
An employer may offer a retirement plan, but it does not mean it is a “qualified retirement plan” so employers need to verify they are in compliance.
All qualified retirement plans are visible in the “Getting Started” tab of the Employers drop-down menu on the CalSavers website.
CalSavers also provides an email template that Employers can use to send to their employees (under the “Help Center” section). Once a business is registered for CalSavers, the employer can review “How do I communicate to our employees about CalSavers?” section.
Employers that have less than 4 employees do not have to register.
Employers with 5 employees or more must be registered by June 30th (no extensions or other timeline is offered). Leased employees need to be included in the calculation.
Get started here:CalSavers
At Pacific Payroll Group, we already have all of the necessary information (for our clients) once the Employers register on CalSavers AND select Pacific Payroll as their payroll provider. You can search for “Pacific Payroll” during registration.
Pacific Payroll will then upload employee data and submit payroll contributions on behalf of employees. If employers meet the requirements to be exempt from CalSavers they will need to declare this to the State via the CalSavers website.
When employee data is uploaded to the CalSavers website, the State will notify each employee directly (within approximately 30 days) and it is at this time the employee can opt out, select a contribution amount, or automatically be enrolled with 5% of their pay withheld and paid into CalSavers.
Contact Pacific Payroll Group via email or by calling 949.215.3769 with any questions.
As a final reminder, employers are not allowed to offer advice on what employees should choose.
If our clients / business owners have questions on CalSavers, we recommend speaking with your CPA, HR department, or CalSavers directly.
If you have questions on payroll deductions or setup, please let us know. We will always work quickly to answer directly or provide you with a name of someone who can.
We’re always here for you.