A 2024 AARP survey found that 1 in 5 Americans over 50 have nothing at all saved for retirement — which is one reason why it’s so important for businesses to help their employees save for the future.
Retirement plans, such as 401(k)s and IRAs, can offer significant tax advantages for savers — and employees are much more likely to save for retirement when their company offers a retirement plan. A Transamerica Institute survey shows that nearly nine out of ten workers whose employers offer a plan are saving for retirement in some form. Still, many employers don’t offer retirement plans — which can limit access to savings for millions of Americans.
That’s where California’s state retirement mandate comes in.
California is home to more than 4.2 million businesses state-wide — of which ~400,000 have under 5 employees. To help more people save for retirement, the Golden State introduced an initiative in 2019 called the CalSavers Retirement Savings Program, or CalSavers for short, to expand access to workplace retirement plans.
In 2026, CalSavers remains a critical compliance requirement for California employers. As of December 31, 2025, businesses with one to five employees must register or certify exemption — or risk fines of up to $750 per employee. However, our research shows that three quarters of affected small business owners aren’t even aware of the deadline.1
If you’re one of the estimated 400,000+ CA businesses with one to five employees that will have to comply with California’s mandate by the end of the year, we’ve outlined what you need to know about the CalSavers program, how it works, pros and cons of the state Roth IRA, and why many employers are transitioning to more robust options like Gusto 401(k) plans.
What is CalSavers?
CalSavers is California’s state-sponsored retirement savings program for employees without employer-sponsored retirement plans. The program enables eligible employees to automatically contribute a portion of their paycheck to a Roth IRA, helping them save, in 2026, up to $7,500 a year or $8,600 a year if they’re 50 and over.1
California’s retirement mandate began its rollout in 2020, requiring businesses to opt into the CalSavers program or offer some other retirement plan by a set of deadlines based on their number of employees. The adoption deadlines for businesses with five or more employees passed in 2022, but legislation passed that same year expanding the mandate to include businesses with one to five employees by December 31, 2025. This means that all California employers are required to offer a retirement program in 2026.1
While opting into CalSavers can be a quick fix for your business, you may want to consider other options that offer more flexibility for employees and could be easier for you, as the employer, to manage. For example, offering a standard 401(k) would allow you to make employer contributions in addition to your employee’s paycheck deferrals, helping them put away more savings — and helping to make you a more attractive employer.
How does the CalSavers program work?
Program structure and contribution limits
With CalSavers, employees are only eligible to contribute to a Roth IRA, and they are automatically enrolled in the plan if their employer opts in to the program. Funds will be deferred from their paycheck each month unless they choose to opt out.
CalSavers does offer several investment options, so your employees can decide how they invest their money. Employees can choose from target-date funds, a money market fund, a core bond fund, a global equity fund, and an Environmental, Social, and Governance (ESG) fund.
The contribution limit for Roth IRAs in 2026 is up to $7,500 or $8,600 for savers 50 and older. For comparison, this is less than half of the annual limit for a 401(k) ($24,500 in 2026). However, employees earning more than the Roth IRA income limit can still contribute by recharacterizing their plan to a traditional IRA. To do so, they need to submit a form to CalSavers every year.2
What are the pros and cons of CalSavers?
While CalSavers can be a good option for small businesses looking to meet the mandate, it isn’t necessarily the best choice over all. Here are some pros and cons to help you decide whether CalSavers is the best fit for your team.
Pros | Cons |
✅ Easy setup for employers | ❌ Lower contribution limits than most 401(k)s |
✅ No employer contributions or fees | ❌ No employer match |
✅ Meets state-mandated compliance | ❌ Limited investment options |
✅ Auto-enrollment can help improve employee participation | ❌ Potential employee fees |
✅ Accessible for all employees, including part-time and seasonal workers | ❌ Ongoing admin duties for payroll deductions |
❌ Can be less appealing to high-income employees | |
❌ No loan option |
CalSavers for employers: Requirements, compliance, and deadline information
Who is required to register for CalSavers?
As of now, employers in California with one or more employees must register for CalSavers or file an exemption. Your business may be exempt if you already offer a qualified retirement plan or if you’re self-employed with no W-2 employees. To opt in to the program, share employee information, and set up payroll deductions, visit the CalSavers website.
If employers miss adoption deadlines or fail to allow employees to participate in the program, they can face penalties of up to $250 per employee if they don’t comply within 90 days of receiving notice. There is an additional penalty of $500 per employee if the employer fails to comply within 180 days of receiving notice, bringing fees to a total of $750 per employee if you miss your deadline by 180 days. The longer you stay out of compliance, the more fees you can accrue — you could get charged another $500 per employee every year if you don’t get things sorted.1
If this is your first time offering a retirement plan, CalSavers can be a relatively easy option to fulfill the retirement mandate and get your team saving. However, if you’re looking for more flexible options that could potentially help both your employees save more and are easier to manage, this could be a good time to consider starting a 401(k) instead.
Tax implications of CalSavers
CalSavers is a Roth IRA, meaning that contributions are made with after-tax dollars, essentially securing tax benefits for the future. Once contributed, earnings grow tax-free — as long as you do not need to withdraw the funds before age 59 ½. If you do, the withdrawn earnings may be subject to a 10% penalty and taxed as income the way early withdrawals are with a traditional 401(k). Withdrawals after retirement are tax-free.3
On the other hand, a traditional IRA or 401(k) plan can lower your taxable income in your contribution year. You get the tax benefits upfront by contributing pre-tax dollars from your paycheck, and distributions after retirement are taxed as ordinary income. Each tax treatment has its benefits depending on an employee’s age and financial situation, but for many workers who rely on the majority of their paycheck month-to-month, tax savings upfront may be more attractive.
One other tax implication to consider is tax credits. While the CalSavers program doesn’t offer a tax credit for employers who opt in, the SECURE 2.0 Act of 2022 features multiple employer tax credits to incentivise businesses to offer retirement benefits. Between the startup tax credit, automatic enrollment credit, employer contribution cost credit, and military spouse credit, businesses can receive up to $16,500 in tax credits for the first three years they offer a retirement plan. These credits can cover 100% of the employer cost for a plan like Gusto’s during that time.4
How much does CalSavers cost for employers?
CalSavers is completely free for employers. It neither requires any employer fees nor employer match contributions.
Your employees, though, will pay $17/year in administration fees to participate in CalSavers. There is a fixed quarterly account fee and, depending on which investment options they select, they will be required to pay expense ratios on the program’s investments, ranging from 0.325% to 0.49%. The fee will be pulled directly from the assets in their Roth IRA.5
While the state plans to reduce participant fees as participation thresholds are met, the fees can be considerably higher than they would be for company-sponsored plans. For example, a modern 401(k) provider like Gusto 401(k)’s managed portfolios have blended expense ratios ranging from .058% to .061% of assets under management, and an account fee between 0.15% to 0.35%. Lower fees could mean more money going towards employees’ savings.6
And of course, bear in mind the penalty fees for non-compliance, which escalate depending on your number of employees and the amount of time since the deadline has passed for your company’s size.
Gusto Starter 401(k) | CalSavers | |
Retirement plan type | Roth IRA | |
Tax benefit | Pre or Post tax | Post-tax only |
Employee asset-based fee | 0.25%7 | .30%5 |
Additional active employee fees | None8 | $17/year account fee8 |
Professionally managed portfolios | 6 | 0 |
Investment options | 40 | 16 |
Exempt from IRS testing | Yes | Yes |
Scales to a standard 401(k) | Yes | No |
Monthly employer fee | $49/month + $6 per participant9 | Free |
Employer resources for navigating the CalSavers mandate
Here’s a step-by-step guide for employers who may be impacted by California’s state mandate:
Step 1: Determine your mandate status
If you have one or more employees and do not sponsor a retirement plan, you will need to register with CalSavers or set up a qualifying alternative, like a Gusto 401(k), immediately.1
What if I’m self-employed or only have contractors? If you don’t issue W-2s to anyone other than yourself, this mandate doesn’t apply to you.
But if you still want to save for retirement (and get the tax benefits), you can open a Solo 401(k) with Gusto — a potentially great option for self-employed individuals who want high contribution limits and flexibility.
Step 2: Register or request an exemption to opt out
To start a registration or request an exemption, you will need:
Your company’s Employer Identification Number (EIN) or Tax Identification Number (TIN).
Your CalSavers Access Code, which is sent to your business’s primary contact with the California Employment Development Department (EDD). You can also request one online.
You may be exempt from the mandate if your company:
offers a qualified retirement plan
closed or was sold
has no employees other than the owners
is a government entity, religious organization, or tribal organization
To apply for an exemption or opt out from CalSavers, you’ll need to submit your exemption reason and supporting documentation for review.
When you’re ready, register or submit your exemption request here.
Step 3: Add employee information
After you register, you have 30 days to upload a roster of your eligible employees. CalSavers will contact them with follow-up steps, including how to customize their accounts and make elections, or instructions for opting out. After you upload your roster, a 30-day window begins for your team to make changes to their account or opt out before payroll deductions kick off. Employees that don’t take any action will be automatically enrolled in the program.
You’ll mainly be waiting during this 30-day period, but there are a few tasks that can set you up for success, like notifying your team that you’re participating in CalSavers and what they should expect.
Step 4: Submit employee contributions
Starting on the first payday after the 30-day window, you will be required to send contributions from your employees’ paychecks to the program. You can enter their contributions online through your account or with the Employee Contribution Template. Make sure to submit the contributions within seven days of taking the money out of your employees’ paychecks.
Ongoing responsibilities
CalSavers isn’t seamless. Unlike other options, like Gusto, that can sync with payroll automatically, once you’re enrolled in CalSavers, you’re responsible for managing everything manually — every single payroll period.
That means:
Updating your employee roster whenever someone joins or leaves
Manually adjusting payroll deductions if an employee changes their contribution amount
Tracking opt-outs and re-enrollments
Uploading contributions for every pay cycle – CalSavers doesn’t sync directly with most payroll systems
You’ll get notifications when employees make changes, but it’s up to you to keep everything updated.
CalSavers for employees: Key resources
Enrollment process
Employees will receive information and instructions once their employer registers for the CalSavers program. Employees can still sign up for CalSavers if their employer opts out, so long as they meet the following criteria:
Age 18 or older
Have a Social Security Number or an Individual Taxpayer Identification Number
Have taxable income
CalSavers features automatic enrollment, which means if employees take no action within the 30-day enrollment period, they will automatically opt into the program with default elections. From there, a percentage of each paycheck will be withdrawn and contributed to their Roth IRA. CalSavers also automatically increases employees’ savings rate by 1% annually until it reaches 8%, though employees can decline this feature.
Employees may choose to modify their savings rate and their investment options, or opt out of the program at any time. They can opt out online through their account, by mailing in an opt-out form, or by calling (855) 650–6918.
CalSavers alternatives
Employers can also choose to offer private retirement plans. A common alternative is a 401(k) plan. 401(k) plans have higher contribution limits, allow for matching and profit-sharing, and offer both Traditional and Roth options. As a result, 401(k) plans can enable business owners and employees to potentially save more for retirement.
Plus, as we’ve mentioned before, businesses starting a 401(k) for the first time may be eligible for multiple tax credits under the SECURE Act worth up to $16,500 over three years.
Gusto 401(k) vs. CalSavers
Let’s take a closer look at how CalSavers stacks up against Gusto’s Standard 401(k) offering.
Feature | CalSavers | Gusto 401(k) |
Account Options | Only Roth IRA | Offers both Traditional and Roth 401(k) contributions |
Who Can Contribute | Only employee contributions allowed | Employee and employer contributions allowed for most plans |
Contribution Limit | $7,500 ($8,600 for those 50). Employers cannot make contributions. | In 2026 employees can contribute up to $24,500. Employers can also make contributions for total savings up to $72,000.2 |
Auto-Enrollment | Auto-enrollment 5% and auto-escalation up to 8% | Auto-enrollment at any rate between 1–10% |
Employer Matching & Profit-Sharing Contributions | Not allowed | Available dependent on plan |
Early Withdrawals | Some flexibility, but a 10% penalty may apply | Subject to a 10% penalty |
Loans | Not allowed | Allowed for most plans |
Investments | Vetted by state advisors | Determined by plan fiduciary10 |
Administration | May require manual support | Streamlined admin once set up |
Cost | While there is no cost to employers, employees pay for plan administration | Employers pay a flat monthly base fee and a flat monthly participant fee based on the number of active participants in the plan. Active employees are only charged an annual account fee starting at 0.15% (0.0125%/month).10 |
Tax Deductions | Since there are no employer contributions, there are no tax deductions for matches | Employer matching contributions are tax deductible up to applicable IRS limits |
Some Gusto 401(k) customers started off with CalSavers and experienced some challenges. However, after switching to Gusto 401(k), 93% of those employers spent less time on admin and 100% were able to eliminate payroll or admin errors. Gusto 401(k)’s customer support and investment experience for employees also set their retirement plans apart from CalSavers for those who switched.11
How to transition from CalSavers to a 401(k) plan
If you’ve already opted into CalSavers but are interested in transitioning to a 401(k) plan, here are some steps you could take to get you started:
Step 1: Evaluate the right 401(k) provider
Research 401(k) providers that support small business plans and consider these options:
Easy payroll integration
Automated compliance features
Low-cost investment options
Roth and traditional contribution support
Gusto 401(k), for example, offers digital plan management, automated reporting, and built-in IRS compliance tools, such as automatic Form 5500 prep, real-time contribution monitoring.
Step 2: Set up your new 401(k) plan
Once you’ve chosen a provider, complete their setup process. This typically involves selecting plan features, including Roth vs. traditional, eligibility, vesting, matching contributions, etc. You’ll also need to set a plan start date and establish your plan document with your chosen features (required by the IRS).
Pro Tip: Choose a start date that aligns with your payroll cycle to help simplify contribution tracking.
Step 3: Notify employees
You are legally required to provide a summary plan description (SPD) to eligible employees within 90 days of creating the plan as well as distribute any additional notices (Safe Harbor, auto-enrollment, etc.) depending on your plan design.
Step 4: Request an exemption with CalSavers
Submit a formal exemption request by going to CalSavers.com. Log in and submit your exemption form indicating your new 401(k) provider, and keep the confirmation for your records.
Step 5: [Optional] Roll over existing accounts
Employees (and business owners) can roll over funds from CalSavers, SEP IRAs, or traditional IRAs into the new 401(k) plan:
Contact the current plan administrator (e.g., CalSavers, IRA custodian).
Request a direct rollover to avoid tax withholding and penalties.
Your new 401(k) provider will guide you through account funding and investment setup.
Important: Ensure the receiving 401(k) plan accepts rollovers, and document the transaction for IRS reporting.
Step 6: Integrate payroll and begin contributions
Coordinate with your payroll provider to start salary deferrals, set your employer contributions (if applicable), and track limits to ensure pre-tax/Roth categorization is accurate.
Step 7: Maintain ongoing compliance
Your responsibilities include:
Filing Form 5500 annually (required once plan assets exceed $250,000)
Conducting non-discrimination testing (if not using a Safe Harbor plan)
Distributing annual disclosures to participants
Many 401(k) providers, like Gusto 401(k), automate these compliance steps so you can focus on your business.
In summary, here are just a few benefits of transitioning to a Standard 401(k) dependent on the plan provider:
Higher contribution limits than CalSavers or IRAs
Roth and traditional options for expanded tax advantages
Employer match flexibility
Loan provisions and broader investment choices
Potential tax credits under the SECURE Act for new plan set up4
Fulfill the mandate — and give your employees a powerful retirement option
With the mandate in place for many California employers, we believe this year is a great opportunity to partner with Gusto to offer a flexible and cost-effective retirement plan for your employees. But regardless of the program you choose, know that once you’ve made a choice for your business, you will be supporting your team’s financial future as well as potentially saving your business hundreds if not thousands of dollars in fees come the new year.
For more information on CalSavers, visit their official website. Already a Gusto customer? Get started with a Gusto 401(k) now. If you’re new to Gusto, set up a free Gusto account now.
Disclosures:
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 is December 31, 2025. You should consult a qualified financial adviser or tax professional to verify that you are meeting the applicable state program requirements. Requirements to report your exemption apply. State program details are subject to change by the state without notice and should be checked prior to making any decisions.
2 May be adjusted annually to account for IRS cost-of-living adjustments. Learn more.
3 Roth contributions are always distributed tax-free. The earnings on Roth contributions will be tax-free if the following conditions are met: (a) you’re either over age 59 ½, disabled, or have died AND (b) it has been 5 years since your first Roth contribution under the current plan. Please consult a qualified financial advisor or tax professional to determine what is applicable to your financial situation.
4 You should consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim.
5 CalSavers charges an assumed annual account fee of between 0.30% (.05% State Fee and a .25% Program Administrative Fee) on assets under management as of February 2025 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 recordkeeping 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 (0.25%). Fees are subject to change by the state without notice and should be checked prior to making any decision.
6 This information is for illustrative purposes only, and is not intended to be construed as investment or tax advice or as an assurance or guarantee of future performance. Investing involves risk and investments may lose value, including loss of principal. Investment advisory services for Gusto’s 401(k) product (when 3(38) fiduciary services are appointed) are offered by Gusto Investment Services, LLC, an affiliated SEC-registered investment adviser. Expense ratios for custom portfolios will vary. For more information regarding these fees, see the ADV 2A Brochure and Form CRS. These expense ratios are subject to change by and paid to the fund(s). View full fund lineup.
7 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 affiliated SEC-registered investment adviser. An assumed annual account fee of 0.25% is applied to assets under management and is deducted on a monthly basis. It’s calculated at 1/12 of the annual stated rate based on the account balance on the last day of each month. See Form ADV 2A Brochure for more information regarding these fees.
8 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.
9 See here for more information regarding fees.
10 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 affiliated SEC-registered investment adviser. An assumed annual account fee of 0.25% is applied to assets under management and is deducted on a monthly basis. It’s calculated at 1/12 of the annual stated rate based on the account balance on the last day of each month. See the Form ADV 2A Brochure for more information regarding fees.
11 Research insights based on data collected in March 2025, from a survey conducted by Gusto Retirement Holdings, LLC that consisted of 156 current clients based in California. Of these, 59 clients signed up because of the mandate, and 15 clients tried CalSavers before switching to Gusto. Gusto 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.
