California Mandate
On September 29th 2016, then Governor Jerry Brown (D) signed into law the CalSavers Retirement Savings Trust Act requiring California employers that do not sponsor a retirement plan to participate in a state-facilitated automatic enrollment individual retirement account (IRA) program. On August 26, 2022, Governor Gavin Newsom (D) signed an amendment to expand the scope of the program to include all private-sector employees in the state.
| Legislative Summary: | Senate Bill 1234 was originally sponsored by Sen. Kevin de León (D), which formally established the California Secure Choice Retirement Savings Investment Board in 2012. However, the CalSavers program wasn’t formally signed into law until September 2016 (SB 1234). The most recent amendment to the Act was signed into law on August 26th 2022. |
| Program Description: | CalSavers is a new retirement savings (IRA) program, created by the CalSavers Retirement Savings Board in conjunction with the Employment Development Department. The program is meant to prepare people for retirement, by directing all employers and employees into saving money, through automatic enrollment of every employee into a state-facilitated payroll-deduct Roth IRA. The CalSavers pilot program was introduced in November 2018 and the full program officially launched on July 1st, 2019. |
| Affected Employers: | California employers with more than one (1+) employee, who have been in business for two or more years, and do not currently offer a payroll-deduct retirement savings program (e.g., 401k plan), must enroll every employee within 30 days of their hire date. Every affected employer must register and choose to opt-in or claim exemption. |
| General Requirement: | Automatic enroll employees at 5% deferral with annual increases of 1% (up to a maximum of 8%) of the enrollee’s wages. Every affected employer must register and choose to opt-in or claim exemption. |
| Launch Status: | July 1, 2019 |
| Full Implementation: | June 30, 2022 - |
| Compliance Deadline: | September 20, 2022 - Employers with 5 or more employees |
| Non-Compliance Penalties: | $100/employee, per calendar year out of compliance |
| Employer Costs: | N/A |
| Employee Costs: | $100 annual account fee + 0.95% account balance |
| Investments: | The program offers a suite of 12 target date funds (TDFs), as the default investment option, and additional investment options - including a money market, core bond, global equity, and ESG balanced funds. |
| Program Website: | CalSavers |
CalSavers FAQ
Why do I need to do anything?
Under California law, California employers are required to offer their employees some sort of workplace retirement savings program. Every private-sector employer in California is required to comply with this new mandate, if they:
- Are registered to conduct business in the state of California
- Have at least one (1+) W-2 employee who has worked for you for at least 30 days · Have been in business for two or more (2+) years; and
- Do not currently offer a qualified retirement savings program to your employees
Non-compliance will result in an annual fine of $100 per employee, with no maximum penalty amount.
How do I register for the CalSavers program?
Every private-sector employer is required to register their business through the CalSavers program website. The program website requires you to enter your Employer Identification Number (EIN) to access the registration website. Any employer who fails to register may be fined $100/employee (annually).
Can I opt-out of the CalSavers program?
Every private-sector employer is required to register through the CalSavers program website, to either enroll their employees or declare their exemption. The only exempt employers are those who already sponsor a qualified retirement savings program – like a 401k or SIMPLE plan. However, if you do not register and self-certify your exemption, you may be fined $100/employee (annually).
What if my employees do not want to save money in a retirement plan?
The CalSavers program is structured around automatic enrollment, which requires every employee to be enrolled with a contribution equal to 5% of compensation, with automatic annual increases of 1% (up to a maximum of 8%). Only employees who register through the program website and actively choose to “opt-out” will be exempt from participation.
Can anyone defer any amount on a pre-tax basis?
No. The CalSavers program is structured around a ROTH IRA that is restricted to after-tax contributions – after applicable payroll taxes have been collected. Only “qualified retirement plans” allow for pre-tax contributions – like a SIMPLE or 401k plan.
What's in the CalSavers program for business owners?
Generally, the state-facilitated Auto-IRA programs are primarily designed to enable employees to start saving for their own retirement. Although business owners may be able to contribute themselves (subject to AGI limitations), employers are generally only responsible to facilitate the program for the benefit of their employees.
As a business owner, am I able to contribute to the CalSavers program?
Yes. Although there are federal income limits that determine each individual’s eligibility to make contributions to a ROTH IRA, which may reduce the amount anyone is eligible to contribute to the state Auto-IRA. Below is an IRS table that summarizes these limitations:
|
If your filing status is… AND your modified AGI is.. THEN you can contribute |
|
|
|
married filing jointly |
< $218,000 |
up to the limit |
|
married filing jointly |
> $218,000 but < $228,000 |
a reduced amount |
|
married filing jointly |
> $228,000 |
zero |
|
married filing separately |
< $10,000 |
a reduced amount |
|
married filing separately |
> $10,000 |
zero |
|
single, head of household |
< $138,000 |
up to the limit |
|
single, head of household |
> $138,000 but < $153,000 |
a reduced amount |
|
single, head of household |
> $153,000 |
zero |
Do I qualify for any federal tax credits by facilitating the state Auto-IRA program?
No. The federal tax credits afforded under the SECURE Act are only available to small businesses (with less than 100 employees) who offer a qualified retirement plan – like a SIMPLE or traditional 401k plan.
Who is responsible for managing and processing employee contributions?
The employer is responsible for ensuring timely remittance of employee contributions to the state program. It is each employer’s responsibility to:
- calculate the correct contribution amounts for each employee,
- withhold the appropriate amount from each employee’s paycheck, and
- upload the payroll-contribution file (each pay period) through the program website. Failure to comply may result in a fine of $100/employee, up to a maximum of $5,000/year!
Do I have the option to choose my own provider(s)?
No. CalSavers has selected the program provider and the available investment options made available within the program. There is no ability for adopting employers to choose their own providers of the AutoIRA program.
Can I make any form of employer contributions to my employees’ accounts?
No. The CalSavers program is only designed to facilitate employees’ saving for their own retirement and does not require (or allow) employers to make any contributions.
What are my options if I do not want to facilitate the Auto-IRA program?
Every private-sector employer in California can choose to establish a “private” qualified retirement plan – like a 401k and declare their exemption from the CalSavers program. Regardless, if employers do not register through the program website and opt out, they may be fined $100/employee (annually).
