California Retirement Savings for Small Business Employees

CalSavers provides employees a retirement savings program without the administrative complexity, fees, or fiduciary liability of existing options for employers. Most employers with at least five employees, that do not already offer an employer-sponsored retirement plan, will be required to begin offering a retirement plan or provide their employees access to CalSavers.

When an employer participates in CalSavers, the employer will deduct a default rate of five percent (5%) of pay from the paycheck of each employee at least eighteen (18) years or older and deposit it into the employee’s CalSavers account. The deduction amount will automatically escalate one percent (1%) each year to a maximum of eight percent (8%), unless the individual employee elects a different amount, elects out of auto-escalation, or completely opts-out of the program. A CalSavers account is a personal IRA account overseen by the CalSavers Retirement Savings Investment Board.

Question:

Which employers must participate?

Answer:

Every California employer must participate in CalSavers if it has:

  • No retirement plan; and

  • Five (5) or more full or part-time California employees (with at least one employee eligible for CalSavers).

Employers that maintain employer-sponsored “retirement plans” to benefit their employees will be exempt from CalSavers. For the exemption, “retirement plans” will include 401(k) plans, qualified profit sharing plans, defined benefit plans, cash balance plans, and 403(a) and 403(b) plans, and arrangements under Section 457(b), 408(k) and 408(p) of the Internal Revenue Code (the “Code”). Employers participating in or contributing to union multi-employer pension plans will also be exempt from CalSavers.

The number of employees, for eligibility for CalSavers, is determined based on the average number of employees as reported to the California Employment Development Department for the quarter ending on the most recent December 31, and the previous three-quarters of available data from the reports.

Non-profit employers must comply with CalSavers, but certain employers are exempt, such as governmental entities.


Question:

When is it effective?

Answer:

An ongoing pilot phase launched on Nov 19, 2018. The mandatory participation dates for employers subject to the mandate will phase-in yearly, based on the number of full-time and part-time employees working for the employer.

June 30, 2020, is the deadline for employers with at least 100 employees, and smaller employees will phase-in :

June 30, 2021: 50-99 employees

June 30, 2022: 5-49 employees

Early participation is also permitted, so beginning July 1, 2019, employers with at least five employees can voluntarily register for CalSavers if they wish to participate before their required registration date.


Question:

What are the advantages of participating in the CalSavers program?

Answer:

  • Employers will have no liability for an employee’s decision to participate in, or opt out of, CalSavers;

  • Employers will have no liability for the investment decisions of participating employees;

  • Employers will not be a fiduciary of CalSavers; and

  • Employers will not bear responsibility for the administration, investment performance, or the payment of benefits earned by participating employees.


Question:

How does an employer participate in CalSavers?

Answer:

  1. Register for CalSavers here;

  2. Upload their employee roster to enable enrollment of all employees;

  3. If applicable, designate a payroll services provider to facilitate on the employer’s behalf.; and

  4. Transmit the payroll contribution to a third-party administrator to be determined by the program.

If you would like to learn more about building benefits and compensation systems for your business, check out HR Building Block: Internal Economy.

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