What is CalSavers?

Many California employers are receiving an information packet from CalSavers Retirement Savings Program. The CalSavers program was launched on July 1, 2019, and is designed to help eligible employees in California establish a retirement savings plan.

Is CalSavers mandatory in California?

All businesses in California will need to eventually adopt the Cal Savers program, or offer their own retirement plan, but the deadline to enroll is progressive, affecting larger companies first, and businesses with more than 5 employees by 2023.

What does Cal Savers do?

The CalSavers program allows employees and business owners, to contribute annually up to $6000 to a Roth IRA. Individuals over 50 can contribute an additional $1000 annually. If you have employees with incomes that surpass the Roth IRA income limits, they may need to opt-out of the CalSavers program. Employees working for eligible businesses are automatically enrolled in the plan but may opt out.

The default contribution rate is five percent, but your employees are welcome to change that. Left unchanged, it will increase by one percent each year until they reach the maximum contribution level of eight percent.

Roth IRA contributions are made on an after-tax basis. However, keep in mind that your eligibility to contribute to a Roth IRA is based on your income level. If you file taxes as a single person, your Modified Adjusted Gross Income (MAGI) must be under $137, 000 for the tax year 2019 and under $139,000 for the tax year 2020 to contribute to a Roth IRA, and if you’re married and file jointly, your MAGI must be under $203,000 for the tax year 2019 and 206,000 for the tax year 2020.

All employers with five or more employees will need or enroll in CalSavers or set up a private retirement plan by the following deadlines:

• More than 100 employees: June 30, 2020 (This deadline has already passed)
• More than 50 employees: June 30, 2021
• 5 or more employees: June 30, 2022

If you’ve received a notice from Cal Savers and do not meet these deadline thresholds, you do not need to enroll now, but any business may choose to.

How much does CalSavers cost?

The plan costs nothing for the employer but there are built-in fees for the employees which are charged as a percentage against their investments, between 0.825 and 0.95%. These are comparable to 401k plan fees.

What’s the difference between CalSavers and a private 401(k) plan?

The Cal Savers plan does not require or allow the employer to participate or match any amounts the employees defer. It also does not offer any tax savings as a 401(k) plan would. 401(k) plans are typically more flexible with options for a deferral match, profit sharing, and other benefits that are far more advantageous to a small business employer.

What are my requirements as an employer?

If you already offer a retirement plan, you don’t need to sign up for the CalSavers program. But you do need to certify your exemption, which can be done online through the CalSavers website.

If you’ve elected to use the CalSavers program instead of a private market option, you’ll need to register your business on the CalSavers website.

If you’d like to contribute to your employees’ retirement savings through an employer match, CalSavers may not be the best fit for you. The program doesn’t offer any way for you to match employee contributions.

Infinium offers an affordable and integrated solution through Ubiquity Retirement Plans, more info on that shortly.

If you have any questions about this new employer requirement for California, please don’t hesitate to reach out to Infinium HR at info@infiniumhr.com.