According to a 2024 report from Clever, 40% of retirees worry that they will outlive their retirement savings, while another 19% say they already have. Many believe employers are at least partly responsible for this, as 55% of respondents reported that their employers didn’t do enough to help them save for retirement.

Some states have begun implementing a retirement savings requirement for businesses within their jurisdictions. These programs, known as state-mandated retirement programs, help ensure that employees can save money for their golden years without putting too much administrative and financial strain on their employers.

However, state-sponsored retirement savings plans may not be the best fit for all companies and all employees. To learn more about the state of California’s retirement savings requirements and what they mean for your business, keep reading. We’ll cover: 

What is CalSavers?

Employers in California must participate in the state’s mandated retirement savings program, known as CalSavers, if they don’t administer another retirement program that meets the state’s qualifications.

CalSavers started as a pilot program in 2018, and since then, it has expanded to include all companies with Californian employees but not a qualifying retirement plan. Employers aren’t responsible for any fees, and minimal upkeep is involved, which reduces the administrative burden for the companies that facilitate the plan contributions. Currently, the program is available to employers with 5+ employees in California, and will expand to all companies next year.

How does the CalSavers program work?

Companies participating in the program enroll qualified employees in a CalSavers Roth individual retirement account (IRA).

Because Roth IRAs are funded with after-tax dollars, the money in the account grows tax-free, and employees don’t pay any income taxes when they withdraw the money for retirement. But if they withdraw the funds before the age of 59½, they must pay a 10% penalty on their earnings portion of the withdrawal. 

Once someone is enrolled in the program, they own their account and can take it from employer to employer—a feature known as portability.

Note that the CalSavers retirement savings plan is voluntary for employees. They can opt out at any time through the CalSavers website, by calling (855) 650-6918, or by mailing the completed CalSavers opt-out form to the address below: 

CalSavers

PO Box 55759

Boston, MA 02205-5759

Eligibility requirements for employees

Employees are automatically enrolled in the CalSavers program if they meet the following conditions:

  • Are 18 years of age or older
  • Have a source of income and a bank account
  • Provide the personal information necessary to enroll in the program
  • Make an initial or recurring contribution of at least $10 to their CalSavers Roth IRA 

Employees who are auto-enrolled in the program have a 30-day window to change their contribution rate or investment options or opt out of the program through their CalSavers account. Once the window has passed, payroll contributions to their new retirement account begin.

Those who want to participate in the CalSavers retirement program but don’t have the opportunity to do so through their employer can sign up directly through the website. 

Gig workers, self-employed individuals, and sole proprietors can also enroll in the program. Like employees who self-enroll, these people can sign up through the CalSavers website. Once their account is set up, they can contribute to their Roth IRA from their bank accounts.

Enrollment and contribution options for employees

If they don’t take action, eligible employees will automatically be set up with a CalSavers Roth IRA at the program’s standard contribution rate of 5% of their gross pay. The program also offers the option to automatically increase the employee’s savings rate by 1% each year on their enrollment anniversary until it reaches 8%.

However, note that employees who participate in CalSavers are responsible for any fees they accrue. Annual fees range between $0.83 to $0.95 for every $100 in an employee’s account, depending on their chosen investments. Plan participants also pay a quarterly $4.50 fee ($18 annually) for account maintenance and administration.

Since the CalSavers program operates under a Roth IRA, participating employees may not contribute more than the annual IRA contribution limit each year. In 2024, the total contribution limit for all of an individual’s IRA accounts is $7,000 (or $8,000 if the employee is 50 years of age or older). On the other hand, employees who exceed the income limits for Roth IRAs may need to opt out of the program manually.

Plan participants can transfer their CalSavers ROTH IRA to a different ROTH IRA or convert their CalSavers Roth IRA to a Traditional IRA through their CalSavers account, by calling (855) 650-6916, sending an email to [email protected], or submitting a recharacterization election form by mail to the address below:

CalSavers

PO Box 55759

Boston, MA 02205-5759

Investment options

The CalSavers program offers several investment options for California employees who are saving for retirement.

During the first 30 days after their enrollment, employees make contributions to the CalSavers Money Market fund. After that, they can move their initial savings and all future investments to a CalSavers Target Retirement Fund based on their age and expected retirement date. Alternatively, plan participants can customize their investments by choosing one of the following five funds:

  • Target retirement fund
  • Environmental, social, and governance (ESG) fund
  • Core bond fund
  • Global equity fund
  • Money market fund

For more information on the investments available through the CalSavers retirement program, visit the CalSavers website

What employers need to know about the CalSavers program

Eligibility requirements and deadlines for employers

Private-sector employers who meet the following conditions must participate in the CalSavers program:

  • Has five or more W-2 employees in California
  • Has at least one employee who is 18 years of age or older
  • Does not offer a separate qualified retirement plan

The CalSavers program allows for some exemptions, such as for religious and tribal organizations. More information on this can be found on the CalSavers website.

Some established businesses may find themselves newly subject to the mandate. For example, the organization may have recently rehired its fifth employee. Or, the company may have chosen not to continue with its previous retirement plan provider. 

These newly-mandated businesses must register with CalSavers by the end of the calendar year in which they become subject to the state’s retirement savings regulations. For example, if the company stops working with its retirement plan provider on September 19, 2024, it has until December 31, 2024 to enroll in CalSavers or an alternate qualifying plan. 

The registration deadline for small business owners with one to four employees is December 31, 2025. However, you can enroll your business in CalSavers before then to provide your workforce with retirement benefits sooner. 

Employer responsibilities under CalSavers

All eligible employers must register their business in the CalSavers program before the appointed deadline. 

Once enrolled, employers must set aside time to set up and manage their accounts. These tasks include enrolling eligible employees, updating their roster of participating employees, withholding and sending account contributions for employees participating in the plan, and tracking payroll contributions for all participants.

However, CalSavers is designed to minimize the administrative burden on employers. There’s no fee to enroll in or facilitate the state-sponsored retirement savings program, and no fiduciary liability for employers participating in it.

Since CalSavers is a Roth IRA, employers can’t contribute to their employees’ retirement accounts under the program. Additionally, employers may not do any of the following:

  • Offer employees investment advice 
  • Manage investments or account information for employees 
  • Convince employees to opt out of CalSavers
  • Deduct contributions from non-participating employees

Non-compliance penalties

The state of California serves failure to comply notices to any eligible employer that fails to enroll in CalSavers or an alternate qualifying retirement savings program by the deadline.

Employers that fail to comply with the program’s requirements 90 days after receiving notice will be fined $250 for every eligible employee. After 180 days of noncompliance, the state increases the penalty to $500 for every eligible employee for a total penalty of $750 per employee.

How to register your business for CalSavers

You can register your business for CalSavers through the CalSavers website

Once the process is complete, you must submit the following information for each of your employees:

You must complete this second step for every new employee you hire within 30 days of their start date or eligibility date, whichever comes first.

Benefits of the CalSavers program

Greater access to retirement plans

A 2022 report from Gusto revealed that 22% of the platform’s users offered retirement benefits in some form. However, in companies with less than 10 employees, only 15% of workers had access to these benefits. The CalSavers program aims to change this trend in small businesses. 

By the end of 2025, California will require all companies with employees in the state to enroll in CalSavers (or administer a qualified alternative program). This mandate will allow Californians who otherwise wouldn’t have access to a workplace retirement savings plan to save for the future.

Convenience for employers and employees

The CalSavers program was designed to reduce the administrative strain that retirement savings programs have on employers. That’s why companies don’t pay any fees to maintain the program and have minimal administrative responsibilities under the plan. 

The CalSavers retirement savings program is also designed to make it easier for employees to save for retirement. For instance, the program’s auto-enrollment features ensure that, even if an account remains untouched, employees can still save for their retirement years on autopilot. Plans are set up so that the contribution rate increases every year if no other action is taken against it.

Do businesses have to use CalSavers?

Businesses are not required to enroll in CalSavers as long as they administer an alternate qualifying retirement plan for their California-based employees. However, an alternative qualifying plan may be a better option for your workforce because of the limited investment options available through CalSavers and the low annual contribution limits for IRAs.

Some options you may want to look into include: 

  • 401(a)
  • 401(k)
  • 403(a)
  • 403(b)
  • 408(k)
  • 408(p)

Before your appointed deadline, take some time to research all of your options to find the best solution for your business and your employees. For instance, an employer-sponsored plan may be best for your company if you want to contribute to your employees’ retirement accounts.

If you opt out of the CalSavers program to enroll in a different retirement plan, you can request an exemption through the CalSavers website.

Retirement benefits made easy with Gusto

Say you want to participate in the CalSavers program but don’t have the time or capacity to take on the administrative duties yourself. In that case, you can outsource these responsibilities to a payroll provider like Gusto.

However, if you’re interested in offering a plan that provides greater benefits for you and your employees, a 401(k) plan administered by Gusto may be the way to go. Here are some benefits of offering a 401(k):

  • Reduced cost with tax credits: Eligible businesses may be able to claim up to $16,500 in tax credits for the first 3 years of their 401(k)—potentially covering 100% of plan costs. 
  • Flexible and affordable plan options: Gusto’s growing list of 401(k) partners means plenty of plans to choose from at low price points to fit your budget.
  • Integrated to make life easier: Gusto payroll syncs with your 401(k) plan to make automatic deductions. Employees manage their own Gusto accounts, with access to their paystubs, W-2s, 401(k) accounts, and contribution details. 
  • Great benefits help you build a great team: Because 401(k) plans have higher contribution limits, employees can save more money with an employer-sponsored 401(k) than with state-mandated IRAs.

Wondering how a 401(k) plan stacks up against a CalSavers IRA? We’ve broken this down for you below:

Features401(k) CalSavers IRA
Auto-enrollAvailable5%
Auto-escalationAvailable1% increase each year on enrollment anniversary up to 8%
Payroll integrationAvailableAvailable
Investment optionsLarge range of funds that varies based on the provider16 funds
Employer matching and profit-sharing contributionsAvailableNo
Investment adviceAvailableNo
TaxabilityPre-tax and after-tax contributions availableRoth after-tax contributions
Annual contribution limit$23,000 for employees ($30,500 for those 50 and older), plus optional employer contributions$6,500 for employees ($7,500 for those 50 and over)
Participant feesVaries, but often ranges between 0.5% and 2% of the plan balance annually0.325% to 0.49% of the plan balance and a $18 administrative fee annually

If you have an existing Gusto account, learn more about our 401(k) partners here.

If you want to enroll in a 401(k) plan, Gusto can also walk you through the setup and management process. Find out how Gusto can help you help your employees save for retirement by creating an account today.

Feli Oliveros Feli Oliveros is a freelance finance and business writer with experience covering personal and small business finance. In 2015 she graduated from UCLA, where she earned her bachelor’s degree in English and minored in Anthropology.
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