The CalSavers program was created through legislation in 2016 to help Californian workers save for retirement. Through this program, workers can save for the future even if their workplace does not offer retirement planning options. Participants also do not need to know anything about investing in order to participate because the program is “professionally managed by private sector financial firms with oversight from a public board chaired by the State Treasure.” (Source)
CalSavers might aim to make retirement planning a reality for everyone, but it does create some new obligations for Californian business owners. Here are some facts you should know about CalSavers before your company defaults into the mandatory program.
Deadlines for registration
CalSavers has tiered registration deadlines based on the number of employees a company has, with the first deadline rapidly approaching:
- Businesses with 100-plus employees – Sept. 30
- Businesses with 50-plus employees – June 30, 2021
- Businesses with five-plus employees – June 30, 2022
Participation in the program is mandatory unless your company has an eligible retirement plan in place before the deadline. If you do not, you have to register your business with CalSavers. Your company must also be prepared to make the required payroll deductions for employees participating in the program.
Here are some additional CalSavers facts you should know:
- CalSavers is a Roth IRA that the employee takes with them no matter where they work.
- Employees will be automatically enrolled after 30 days unless they opt out
- Enrolled employees will have 5% of their gross pay deducted via payroll contribution.
- The contribution amount increases automatically by 1% a year up to a max of 8%.
There are penalties for non-compliance with 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 (Source)
You can learn more about the program, or start the CalSavers registration process here. To register you’ll need your California payroll tax number, your federal employer identification or tax identification information along with a CalSavers access code. This should have been sent to your business already, but if you don’t have it, you can request one during the registration process.
CalSavers may not be the best option
CalSavers might seem like a simple solution for providing employees access to a retirement planning. It is definitely an easy path to take since employees’ default into it and it places few demands on business owners. In reality though, CalSavers only provides the bare minimum in terms of retirement savings and it can actually be detrimental for your business.
CalSavers is a Roth IRA which only allows your employees to save up to $6,000 yearly, or $7,000 for those over 50. There is little control in terms of customizing the account, and fees are still assessed. This makes it a less than favorable retirement solution for employees.
For some companies, however, it may actually be detrimental. For instance, you cannot make any matching contributions into CalSavers. This takes away a powerful tool for reducing taxes, especially for construction companies that do prevailing wage work.
Alternatives to CalSavers
You can comply with the law and opt out of the mandatory state program by setting up a qualifying retirement program before the deadline. This can save you the fines associated with non-compliance and protect your ability to leverage the retirement program for your company’s benefit.
Qualified retirement plans include:
- Qualified pension or profit sharing plans under 401(a)
- 401(k) plans
- 403(a) plans
- 403(b) plan
- Simplified Employee Pension (SEP) plans
- Savings Incentive Match Plan for Employees (SIMPLE) plans
- Payroll deduction IRAs with automatic enrollment.
Some plans are easier to set up than others, so you will want to seek advice to determine the best path for your business. For construction companies, a 401(k) bona fide trust can be the quickest and most beneficial route to take. This will allow you to contribute fringe benefits, maximizing the amount of credit you take in the process.