The CalSavers Retirement Savings Program is a new initiative, launched on July 1, 2019, that’s designed to help employees at California businesses save for retirement.
Through CalSavers, your employees can contribute to a Roth IRA with a maximum contribution limit of $6,000 per year. Employees age 50 and over can contribute another $1,000, for a total annual contribution of $7,000. If you have employees with incomes that surpass the Roth IRA income limits, they may need to opt out of CalSavers.
All employers with five or more employees will need to set up private retirement plans or enroll in CalSavers by the following deadlines:
- More than 100 employees: June 30, 2020
- More than 50 employees: June 30, 2021
- Five or more employees: June 30, 2022
Smaller businesses still have a few years to prepare, but the first deadline has already passed for larger companies (as of this publication date).
What are my requirements as an employer?
If you have five or more employees, California Senate Bill 1234—the law that created CalSavers—requires you to either offer a qualified retirement plan through the private market, or give your employees access to the CalSavers program by the deadlines listed above.
If you already offer a retirement plan, you don’t need to sign up for CalSavers. But you do need to certify your exemption, which can be done online through the CalSavers website.
If you’ve elected to use this public program instead of a private market option, you’ll start by registering your business on the CalSavers website. (You’ll start on the same screen as employers who are certifying their exemptions.)
Once enrolled, you need to provide the following information about each current employee:
- Their name
- Their date of birth
- Their Social Security Number or individual taxpayer identification number
- Their contact information
You’ll have to update the system with the same information for new employees. This has to be completed within 30 days of your new hire’s start date or eligibility date, whatever is sooner. All of your employees will be automatically enrolled in CalSavers after 30 days, unless they opt out of the program.
You’ll also need to deduct their regular IRA contribution from their paycheck and submit it to CalSavers.
The default contribution rate is five percent, but your employees are welcome to change that. Left unchanged, it will increase by one percent each year until they reach the maximum contribution level of eight percent.
If you’d like to contribute to your employees’ retirement savings through an employer match, CalSavers may not be the best fit for you. The program doesn’t offer any way for you to match your team’s contributions.
How much does CalSavers cost?
As the employer, you won’t have to spend anything—CalSavers is entirely free for you to use.
However, your employees will have to pay an administration fee, taken from the assets in their accounts. Depending on the investment program they choose, they will pay an annual fee of between 0.825 and 0.95%—approximately $0.83 to $0.95 for every $100 in their IRA account. Fees for private 401(k) plans vary, but they typically range from 1% to 3.5%, based on the size of the plan.
Some small business 401(k) providers offer even lower portfolio fees. For instance, Gusto and Guideline have average portfolio fees ranging from 0.06% to 0.07%, depending on the chosen investments.
What’s the difference between CalSavers and a private 401(k) plan?
Typically, a private employer-sponsored retirement plan, the most popular choice being a 401(k), offers more flexibility. This is especially true if you want to match your employees’ contributions, or contribute outright to their retirement savings.
For your employees, there isn’t necessarily a “best way to save for retirement.” Often, the best situation depends on your team’s unique needs—and how much you can help.
While the exact details of your private 401(k) plan may depend on the provider, here are the general differences between CalSavers and a private market option.
|What is the contribution limit?||$6,000 ($7,000 for employees age 50 and older)||$19,000 ($25,000 for employees age 50 and older), not including employer contributions|
|Can you match your employees’ contributions?||No||Yes|
|Are there any fees for the employees?||0.825–0.95% per year||Varies, depending on your plan|
|Do you have to pay to administer the plan?||No||Yes|
|Are employees auto-enrolled?||Yes||Varies, depending on your plan|
How can I encourage my employees to participate in CalSavers?
You actually can’t.
While you need to provide the option by the deadlines listed above, and employees will be auto-enrolled in the program if you don’t offer another retirement plan, you must remain neutral about your employees’ participation. Giving advice is strictly forbidden.