California-based businesses with five or more employees need to make sure they are in compliance with CalSavers by June 30th, 2022. Employees are defined as those over age 18 with W2 income during the year. There are no minimum requirements on hours worked.
What is CalSavers?
CalSavers is a mandatory state-run retirement program. The program is an automatic enrollment payroll deduction Roth IRA. It is funded by employee salary deductions sent to the program by the employer. The employer has no costs or fiduciary responsibility but does have some administrative tasks. The most common are registering all employees into the system, managing opt-outs, and deferral changes as needed.
Who is exempt?
For employers who offer a qualified retirement plan like a 401(k), 403(b), or SIMPLE IRA you do not need to participate in CalSavers, but you do need to register your exemption. You can do that here. Employers with fewer than 5 employees, religious organizations, tribal organizations, and government entities are exempt from establishing CalSavers.
Non-profit organizations are not exempt from CalSavers requirements.
What are the penalties?
Eligible employers who fail to allow employees to participate in CalSavers are fined $250 per employee after 90 days. After an additional 90 days, there is another $500 penalty per employee.
What are my options?
CalSavers will be a great option for some employers who don’t currently offer a retirement plan. Some employers may wish to start a retirement program like a 401(k) to better meet their and their employee’s needs.
The team at Heffernan has put together a program for businesses looking to start a 401(k) plan for their employees but are worried about the administrative complexity and cost.