The small business owner's guide to navigating state mandated savings plans
What to Know About CalSavers: California's Retirement Savings Program
There's long been a coverage gap in the retirement industry, specifically as it relates to small businesses. In fact, only one-third of small businesses offer any type of retirement benefit to employees—making it a serious challenge for those employees to properly prepare for a financially secure retirement.1 In an effort to safeguard the financial future of its citizenry, the California state government is stepping in to tell small business owners that they're going to have to start offering employees a retirement plan to save in.
Is CalSavers mandatory in California?
Formerly known as California’s Secure Choice savings program, CalSavers is a state-run retirement plan that will ensure roughly seven million California workers have access to a retirement savings program through work—which is important because half of U.S. households are not on track to have enough retirement income to maintain their current standard of living.2 The benefits of the program are potentially long-lasting; when more people today have the ability to save for their retirement, fewer future senior citizens will have to rely on taxpayer-funded public assistance in poverty. And Americans clearly see the benefit of such a program: a large majority of Americans (72 percent) agree that state-facilitated retirement programs are a good idea, and a full 75 percent say they would participate in such a program—consistent across all generational and political lines.2
You might also be interested in: Why are states beginning to mandate small business retirement plans?
California’s state-mandated retirement program details
While the state mandated program was ultimately designed to close the coverage gap and limit the number of workers in California that don’t have access to a retirement savings plan, it was also designed to give employers a simple, cost-effective, hands-off approach at helping their employees prepare for their future retirement.
The CalSavers plan was set up as a payroll deducted auto IRA plan, automatically enrolling eligible employees at a 5 percent contribution rate with 1 percent auto escalation, up to 8 percent of the worker’s salary. Employees can opt in or out of the program at any time, and the account stays with them even if they change jobs. Eligible workers who don’t proactively opt out of the plan will be automatically enrolled 30 days after their hire date or eligibility date, and their contributions are fully vested from Day 1.
Business owners are also eligible to participate in CalSavers, but only if they’re also an employee of the business they own. If they’re not an employee and would still like to contribute, they may do so, but contributions will have to be made from their bank account rather than via payroll deductions. This same process applies to self-employed workers who would like to participate.
How will CalSavers impact small business owners in California?
The CalSavers retirement savings program may have a substantial impact on small business owners—but only in the way of helping their employees save for a financially-secure future. In reality, small business owners will play a limited role in the overall operation and day-to-day maintenance of the plan, with no fiduciary responsibilities, no plan fees to pay, no annual reporting tasks, and no real decisions to be made. The only real responsibilities the employer will have is to register for the plan, set up the account, and submit participating employees’ contributions via payroll deduction.
You may be thinking, “Do I have to register?”
Not necessarily—but in most cases, yes. If you have at least one eligible employee, you will eventually be required to register for the CalSavers retirement program unless you already offer a qualified retirement plan or choose to start a qualified plan with a different provider. Which leads us to our next point—California’s state-run IRA program is not the only option you have. Employers who choose to offer another qualified retirement plan, like a 401(k), 403(a), 403(b), SEP or SIMPLE IRA, payroll deducted IRA with auto enrollment, or qualified pension plan, won't be required to register for the CalSavers retirement savings program. Religious, tribal, and governmental organizations are also exempt.
In all other instances, yes, you'll be required to register your business for California's mandated retirement plan.
CalSavers rules, regulations, deadlines, and penalties
The CalSavers retirement program features a three-year phased rollout approach, staggering deadlines for registration based on employer size. That being said, any employer, regardless of size or enrollment deadline, can register to join the program at any time. That’s important to know because registration for CalSavers has already opened as of July 1, 2019.
Business owners in California will need to adhere to the following CalSavers registration deadlines:
|5+ Employees||1-4 Employees|
|Deadline passed*||December 31, 2025|
*Take action now to avoid any financial penalties.
The CalSavers program will contact you when your applicable registration deadline is approaching, and once you're successfully registered, you’ll have a few more tasks at hand before you can "set it and forget it." You'll need to add delegates or payroll representatives, then create a payroll list with eligible, participating employees. Once your account is set up and ready to go, you’ll have to stay on top of maintenance tasks, like submitting contributions, ensuring your payroll is up to date with new hires, and updating if an employee has terminated.
If you fail to adhere to the above registration deadlines for your business, you'll be subject to some pretty hefty penalties. If you don't register in a timely manner, without good reason, you'll receive a failure of notice to comply; if 90 days passes after receiving this notice and you still haven't taken action to register for the program, you'll be required to pay a penalty fee of $250 per eligible employee. If you wait another 90 days before acting, totaling 180 days after receiving the notice, you’ll be subject to an additional $500 penalty per eligible employee for failing to comply with the mandate.
Current status of CalSavers retirement program
The phased rollout for employees to enroll in CalSavers is currently underway, and a few years in, the program is clearly already working. With almost 120,000 employers enrolled in the program and more than 425,000 savers, CalSavers is helping more savers save for what matters—and that’s our whole goal at Ascensus. As the program administrator for CalSavers, Ascensus works closely with the state to:
- Simplify the plan and account management process with custom-built, user-friendly administration websites
- Provide consistent and clear education about the program through all channels
- Offer a dedicated service team to answer employer and employee questions on the program and general retirement savings
For more information about CalSavers:
If you have additional questions about the CalSavers program, there are a variety of helpful resources available to you on the CalSavers website. If you’d rather speak with a representative from CalSavers for more information, call 855-650-6916 or email firstname.lastname@example.org.
Learn more about retirement state mandates.
1"Only One-Third of Small Businesses Offer Employees Retirement Plans." Accessed August 31, 2023. https://www.investopedia.com/only-a-third-of-small-businesses-offer-retirement-plans-7497113.
2"Americans' Views of State-Facilitated Retirement Programs." Accessed August 31, 2023. https://www.nirsonline.org/reports/stateplans/.