As of January 1, 2026, all California employers with at least one employee are required to offer a retirement benefit. The requirement is part of the CalSavers mandate, which is estimated to impact 4.2 million small businesses state-wide — of which 400,000 have under five employees.
Which begs the question: which retirement benefit should you offer your employees?
Luckily, you have a few options to choose from, such as the state's CalSavers Retirement Savings Program — that offers a Roth IRA. However, while the CalSavers Roth IRA is a helpful compliance option for businesses — especially if they're worried about meeting the mandate — the program might not be ideal.
Keep reading to learn more about the pros and cons of the CalSavers program and what alternatives you can sign up for — like a Gusto 401(k) — to meet the state's requirements.
What is CalSavers and why was it created?
The CalSavers Retirement Savings Program — CalSavers for short — is a state-sponsored retirement savings program California employers have to opt into if they don't already offer a qualifying retirement benefit.¹
The program was enacted in 2016 after the state legislature passed the CalSavers Retirement Savings Trust Act, which aims to give all California employees access to an affordable, accessible retirement plan. The program began enrolling employers in 2019. The CalSavers retirement mandate is related to a broader legislative movement across the country aimed at helping more people gain access to retirement benefits.
Is CalSavers mandatory in California?
Yes, signing up for CalSavers or an alternative retirement plan is mandatory if you are an Eligible Employer.
As of January 1, 2026, all California employers with at least one employee are required to enroll or find a qualifying alternative.
If you already offer a qualifying retirement plan, you don't have to use CalSavers — you're already set once you record it with the state. In fact, many businesses do go with an alternative.
According to 2026 data, the program's exemption rate is 48% — meaning almost half of Golden State businesses choose an alternative to CalSavers (or were exempt due to religious, tribal, and government affiliations).
What do alternatives look like? At a high level, retirement plans that allow businesses to opt out of offering the CalSavers IRA include:
401(k): Employer-sponsored retirement plans, including multiple employer plans or pooled employer plans.
401(a): Employer-sponsored defined contribution plans, including profit-sharing plans and defined benefit plans.
403(a): Retirement plans for employees in the public sector, including qualified annuity plans or 403(b) tax-sheltered annuity plans.
408(k): Simplified Employee Pension (SEP) plans.
408(p): Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plans.
Payroll deduction IRAs with automatic enrollment.
If skipping the mandate sounds more convenient, think again. For the first 90 days of noncompliance, the penalty is $250 per eligible employee. If noncompliance continues for180 days or more after notice, you'll be charged an additional $500 per employee. And, if you're still not compliant after two years, you'll be hit with an additional $500 per employee.
Non-compliance penalties accumulate:
90 days: $250/employee
180 days: an additional $500/employee (additional annual penalty if noncompliant after first $250/employee penalty)
Year 2: $500/employee Learn more
Year 3: $500/employee Learn more
What are the pros and cons of CalSavers?
As a small business owner now subject to California’s retirement mandate, it is important to evaluate which option is best for your business and your team. Here are some of CalSavers' pros and cons to help you make the right choice.
CalSavers benefits: What's good about it?
It's free for employers: Enrolling your business in CalSavers is free and generally simple to do — you just have to provide your access code, EIN or TIN, and upload your employee roster.
Employees can start saving for retirement: CalSavers is an entry point to retirement savings for the 7.5 million private-sector workers in California who lack access to a workplace retirement plan.
CalSavers potential challenges: What employers and employees need to know
It could be cumbersome to maintain: Your ongoing responsibilities as an employer include processing employee payroll contributions, keeping your accounts up to date, and adding or removing employees as necessary. Note: you may need to do this manually or pay for an integration with your payroll provider.¹
Retirement plans can be limited: CalSavers defaults to Roth IRAs, which historically have lower contribution limits compared to 401(k) plans, which can vary, and income restrictions. This may make it harder for employees to build up their savings. While there is a pre-tax contribution option, there are several hurdles to setting it up. Employees are defaulted into a Roth IRA and must manually recharacterize their contributions after each deposit by printing and mailing a multi-page form. This process must be repeated every year—it's not a one-time election.
There's no employer match: Employers aren't allowed to match employee earnings under CalSavers, which means your employees could miss out on potential savings — and you may miss out on a powerful way to attract and retain talent.11 As more and more businesses comply with the CalSavers mandate and offer different retirement plans, employer matching (via plans like most 401(k)s) could set businesses apart.
Employees may face higher fees: Your employees would pay a fixed account fee of $14 a year ($3.50 quarterly), along with a total annualized fee of .20%². This may be high compared to Gusto 401(k) where active employees are only charged an annual account fee starting at 0.25%.³ Investment options may be limited based on your investment objective: CalSavers only offers employees 17 funds to invest their savings in. The program also doesn't manage employee portfolios or offer a guided personalized investment experience.
Comparison Table: Gusto 401(k) vs. CalSavers
Feature | Gusto 401(k) | CalSavers
|
Retirement plan type | Roth IRA | |
Tax benefit | Pre or Post tax | Post-tax only |
Employee asset-based fee | 0.25%.⁵ | .20%² |
Additional active employee fees | None⁶ | $14/year account fee⁶ |
Professionally managed portfolios | Yes | No |
Investment options | 40 | 17 |
Exempt from IRS testing | Yes | Yes |
Scales to a standard 401(k) | Yes | No |
Monthly employer fee | $49/month + $6 per active participant | Free |
CalSavers alternatives — and why Gusto could be a great choice for your business
Giving your employees access to a retirement plan may be a responsible, smart business decision. After all, 93% of workers11 say retirement benefits influence whether they'll take a job. With that in mind, you may want to consider all of your options.
Here are three alternatives to the CalSavers state program:
401(k)
A 401(k) is an employer-sponsored retirement plan that can offer greater flexibility, more tax benefits, and may be a better value for employees. In fact, 70% of employees prefer a 401(k) over a state-run IRA.11 Gusto’s 401(k) can be a great CalSavers alternative. It's a low-cost, scalable plan for small businesses that need flexibility.
Not only can your employees make pre-tax and Roth contributions with most of Gusto’s 401(k) plans, but you can match their contributions and customize enrollment based on which one you choose. Plus, Gusto’s 401(k) plans come with twice as many funds and portfolio management services3, so your employees have more investment options and a guided investment experience.
There are a couple of drawbacks to 401(k) in comparison to a Roth IRA,:
While 401(k) plans involve employer costs; the added value and comprehensive service often justify the investment. 81% of customers say Gusto’s 401(k) fees are a small price to pay for the quality of service and ease of use.⁹
If a participant withdraws money before age 59½, they'll generally face an early withdrawal penalty of 10% (unless there is an exception). However, unlike IRAs, many 401(k) providers allow participants to take out a loan against their balance or request a hardship withdrawal, giving people more options when they need funds early.
Pro tip: SECURE 2.0 Tax Credits could cover 100% of the employer cost of a 401(k) for three years.⁸
SIMPLE IRA
A Savings Incentive Match Plan for Employees, or SIMPLE IRA, is a retirement plan geared toward businesses with fewer than 100 employees. Both employees and employers can make pre- and post-tax contributions. SIMPLE IRAs are straightforward to set up and manage, but don't offer as much flexibility as 401(k) plans.
SEP IRA
A Simplified Employee Pension Individual Retirement Account, or SEP IRA, is a retirement plan that's especially popular among self-employed people. SEP IRAs allow for both pre- and post-tax contributions. While you can add employees to your SEP IRA plan, only employers can make contributions.
Final thoughts: Is the CalSavers Roth IRA worth it?
The CalSavers Roth IRA can be a helpful compliance option for businesses that need a basic retirement option in order to meet the mandate. However, if you want a program that can help you attract talent, that can grow with your business, and is easy to maintain, 401(k) like Gusto 401(k) could be a smart, strategic solution for your business so you can meet California compliance requirements without possibly sacrificing time.¹⁰
With a Gusto 401(k), not only can you cover your compliance bases, you can give your employees more investment options — and set your business up for financial success.
Thinking about an alternative to CalSavers? Try Gusto's 401(k) built for small businesses.
Disclosures
This content is general information in nature. Nothing contained in this article is intended to be, nor should be construed as, legal, tax, or investment advice. Gusto Retirement does not warrant or guarantee the accuracy, reliability, and completeness of the content. We encourage employers to consult with qualified legal counsel and financial tax advisors for advice regarding their organization's compliance with applicable laws. This content is believed to be current as of the published date.
¹ The CalSavers mandated registration deadline with at least 1 employee (as reported to the EDD in the preceding calendar year), who are not otherwise exempt from participation, can register with CalSavers. The registration deadline for employers with 1-4 employees was December 31, 2025. Requirements to report your exemption apply. Gusto has prepared this summary from third-party sources as of May 2026. The information herein is considered to be reliable at the time of writing, may not necessarily be all-inclusive, is not guaranteed as to accuracy and is subject to change at any time without notice. The information provided herein is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. Investing involves risk and investments may lose value. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein. Deadlines, fees, and other program details are subject to change by the state without notice and should be checked prior to making any decisions and can be reviewed by visiting the State of California's Franchise Tax Board. Visit the CalSavers site to learn more.
² CalSavers charges an assumed annual account fee of between 0.20% (.05% State Fee and a .15% Program Administrative Fee) on assets under management as of May 2026 according to CalSavers Program Description. This fee includes the State Fee and the Program Administrative Fee. The State Fee is payable to the Board to offset expenses related to the establishment, oversight, and administration of the Program. The State Fee accrues daily and is factored into each Investment Option's Unit Value. The Program Administrator receives the Program Administration Fee for providing record keeping and administrative services for the Program pursuant to a contract with the Board. The Program Administration Fee accrues daily and is factored into each Investment Option's Unit Value. The fee presented includes the Underlying Fund Fee (0.025%-0.19%), the State Fee (0.05%), and the Program Administration Fee (0.15%).Fees are subject to change by the state without notice and should be checked prior to making any decision.
³ Investment advisory services for Gusto’s 401(k) product (when 3(38) fiduciary services are appointed) and SEP IRA/IRA products are offered by Gusto Investment Services, LLC, an SEC-registered investment adviser, the "Affiliated RIA"). Specific references herein to "asset-based fees" or "investment options" or "we" or "our" in this specific context is referring solely services provided- or fees charged- by the Affiliated RIA. See the Affiliated RIA's Form ADV 2A Brochure for more information regarding its services and fees. Recordkeeping services are offered by Gusto Retirement Services, LLC (“Gusto Retirement”). 3(16) plan administration services are also offered by Gusto Retirement and only made available to clients who utilize an eligible payroll provider. Gusto Retirement uses a third-party to provide custodial services. Custodial fees are paid by Gusto Retirement.
⁵ Investment advisory services for Gusto's 401(k) product (when 3(38) fiduciary services are appointed) and SEP IRA/IRA products are offered by Gusto Investment Services, LLC, an SEC-registered investment adviser. The estimated total AUM fee of 0.31% combines the average fund fees for the managed portfolios of 0.06% with an assumed account fee of 0.25%. The account fee is applied to assets under management and is deducted on a monthly basis at 1/12 of the annual stated rate based on the month-end account balance. This information is provided for illustrative purposes only and the actual total AUM fees will vary based on the portfolio and/or funds selected. The managed portfolios have blended expense ratios ranging from 0.058% to 0.061% of assets under management. Expense ratios for custom portfolios will vary. These expense ratios are subject to change by and paid to the fund(s). View full fund lineup. The assumed annual account fee applied to assets under management is deducted on a monthly basis. See the Form ADV 2A Brochure for more information regarding fees.
⁶ The fee presented does not include other fees that a 401(k) participant may incur, including, but not limited to, from mutual fund expense ratios and a monthly maintenance fee to participants who end employment. See here for more information regarding Gusto Retirement Services, LLC fees. Go to https://www.calsavers.com/ for more information on CalSavers participant fees.
⁷ Results for different businesses may vary.
⁸ You should consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim.
⁹ Research insights based on data collected in March 2025, from a survey conducted by Gusto (formerly Guideline) that consisted of 156 clients who were active at the time of the survey based in California. Guideline was identified as the survey sponsor. Though the survey is broad in scope, the experiences of the respondents in this survey may not be representative of all clients.
¹⁰ Speak with a financial professional to determine which plan may be best suited for your business's objective.
11 Research run by Gusto Retirement using Suzy research insights based on data collected December 2023, from a survey of 1038 US-based respondents. Guideline (now known as Gusto Retirement) was not identified as the survey sponsor. Though the survey is broad in scope, the experiences of the respondents in this survey may not be representative of all people.
