Answers to All Your Important CalSavers Questions
Do you have one for your employees? Are you required to?
The state of California created the CalSavers program in 2016 which requires eligible employers that do not sponsor a qualified retirement plan to participate in the CalSavers program. If an employer sponsors a qualified retirement plan, they should inform CalSavers of their exemption from the program on the CalSavers website. There are several qualified retirement plans and they include a 401(k), 403(b) and a SIMPLE IRA
The rollout of the CalSavers program started in 2020 and was phased in over three years based on the number of employees the company employed in the state of California the year prior to when they enrolled in the program. The final deadline for companies with 5 or more employees was June 30th, 2022.
Read on for answers to questions we have received from our clients regarding CalSavers and learn how the CalSavers deadline will impact you – regardless of your organization’s size.
What is CalSavers?
CalSavers is a program sponsored by the state of California to ensure all Californians are able to save for their retirement through automatic payroll contributions. It is designed to be as easy as possible for the employer. The employer’s role is to add and maintain their employee roster, deduct the employee contributions from their paychecks and submit them to CalSavers so they can be added to the employee’s retirement accounts. There are no employer fees and the employer does not make contributions to the employee accounts.
What happens after I enroll in the program?
Once an employee’s name and contact information is added to the CalSavers website, an email from the program administrator is sent directly to the employee. This email will contain information on how the employee can set up their account and set the amount of the contribution they want to make from their paychecks. It also informs the employee that if they do not opt-out within 30 days, they will be automatically enrolled at 5% of their salary with a 1% increase to their contributions each year until they reach 8% of their salary.
Employees are able to opt-out by accessing their CalSavers account, by calling the automated phone number listed in the email, or by completing a paper opt-out form. They may also make future changes to their contributions or their investments or opt-out or in by accessing their CalSavers account.
Contributions can be invested in various funds including the option of a Target Retirement Fund. More information about the investments can be found on the investments section of the CalSavers website.
The contributions are made after taxes and are invested in a Roth IRA which means employees don’t pay taxes on their contributions when they make a withdrawal. Earnings on their contributions may also be tax-free if they meet certain IRS criteria. The account is portable and the employee keeps it even if they leave their current job. More information about the program can be found on this CalSavers flyer which can be distributed to employees.
Who is an eligible employer?
An eligible employer has been defined as one that has 5 or more employees in the state of California throughout the previous calendar year.
The number is calculated by averaging the number of employees the employer reported to the Employment Development Department (EDD) on their previous four DE9C filings for the prior year. Both full-time and part-time employees are counted for purposes of calculating the number of employees.
On August 26th, 2022, Governor Newsom signed SB 1126. This bill clarifies that an eligible employer excludes sole proprietorships, self-employed individuals, or other business entities that do not employ any individuals other than the owners of the business. SB 1126 also expands the definition of eligible employers to include those that have at least one employee. The deadline for employers with one but less than 5 employees to enroll in the program is December 31st, 2025.
If I don’t sponsor a retirement plan for my employees, what do I need to do?
If you are an eligible employer but have not already, you should immediately register with the CalSavers program. You will need your Federal Employer Identification Number or Tax Identification Number (EIN/TIN) and your CalSavers Access Code. You would have received your Access Code in emails and letters that were sent to you by CalSavers. If you do not have the Code, you can request it on the employer section of the CalSavers website.
Are there penalties for not complying?
Yes, an eligible employer who does not sponsor a retirement program and who does not participate in CalSavers, will be given a notice and if they still do not comply within 90 days of the notice, they will pay a penalty of $250 per eligible employee. If they have still not complied after 180 days, an additional penalty of $500 per eligible employee will be assessed. The state has said that it has begun enforcement actions and will be reaching out to non-compliant employers in the near future.
What happens if my company has grown and I now have over 5 employees?
You can enroll in the program now and give your employees the advantage of being able to save for a more secure retirement. Each spring, CalSavers will be assessing the employer’s status and will be sending eligible employers registration materials for the program. The employer will have until December 31st, 2022 to either implement a retirement savings plan or to register for CalSavers.
Need help with implementing the CalSavers program for your employees? We can help ensure a smooth implementation and transition for your company and your employees. We have found that clear communication with employees has helped alleviate any anxiety they may have, especially with regard to auto-enrollment and opting out of the program.
