Owning a small business usually means wearing many hats, occasionally putting out fires, and constantly looking for more time to spend on the reason you started your business in the first place. The CalSavers law may feel like just another distraction, but the silver lining is that it could help you reward loyal employees with a valuable benefit. Let’s boil it down to what you need to know right now.
What is the CalSavers law?
The new CalSavers law requires employers to join the CalSavers retirement savings program, unless you’re exempt because you have a 401(k), 403(b), SEP IRA, or Simple IRA retirement plan. The law is meant to help more people save more money for retirement with a convenient payroll deduction.
Every company with at least 50 employees must offer a retirement plan by June 30, 2021. (Companies with five or more employees have until June 30, 2022.)
Who does it affect?
All employers with more than five California-based employees (at least one of whom is 18 or older) are affected. That includes non-profit organizations (including religious organizations) with paid employees.
If your company already has a 401(k), 403(b), SEP IRA or Simple IRA, contact the State of California to receive an exemption. Click here for more information.
Employers who join CalSavers are not responsible for managing any part of the plan, communicating with employees about the program, or enrolling them in the plan. CalSavers takes care of that. What are the employer’s ongoing responsibilities?
- Submitting correct and fully updated information to the CalSavers program
- Submitting changes to information in treal time (including adding new employees and removing employees when they leave)
- Submitting correct contributions with every payroll
After an employer registers, CalSavers communicates directly with their employees about the program. All paid California-based employees 18 or older are eligible to participate and are automatically enrolled in CalSavers unless they choose to opt out. Even if they don’t respond to CalSavers’ communications, they are automatically enrolled at a 5% contribution rate (which increases by 1% until it reaches 8%).
Employees choose from five investment funds to grow their savings. If they don’t make a choice, their first $1,000 savings automatically goes into a money market fund; after that, savings automatically go into a target date retirement fund based on their age. They can choose to opt out of the program at any time, to change the contribution rate, or to change the investment fund. If they leave your company, their account goes with them — even if they move out of state. Altogether, employees are responsible for:
- Going to CalSavers.com or calling CalSavers to make their plan choices
- Choosing whether to participate or opt out any time after that
- Choosing how much to contribute (up to 8% of earnings)
- Deciding how to invest (among five investment fund options)
- Paying all fees ($0.83 – $0.95 per $100 of savings, depending on their investment choice)
- Monitoring all of their own retirement contributions to make sure they don’t break IRS rules
When does the law start?
The law is already in effect, and employers can register now.
Why do I need to act now?
Employers who miss their deadline are fined $250 per employee after 90 days. After 180 days, they’re fined an additional $500 per employee. A business owner with 100 employers can easily avoid writing a $75,000 check to the State of California, just by giving their employees a way to save for retirement.
How do I avoid penalties?
Step 1: If you already offer a qualified employer-sponsored plan, go to CalSavers.com and request your exemption. (If you’re not sure whether your plan qualifies, contact ForUsAll and we can help.) If you don’t have a plan, choose the CalSavers plan or another qualified plan. The ForUsAll modern 401(k) plan can give you a CalSavers exemption and it may be the best option for your business, and your employees.
Step 2: If you choose CalSavers, register with all of the required information for all eligible employees and start payroll deductions. See the CalSavers setup guide, here.
Step 3: To learn more about how the ForUsAll modern 401(k) can exempt you from CalSavers while adding a valuable tool for rewarding your loyal employees, contact us for a demo today. We can help you design a retirement savings plan that works for your business and helps your employees save for the retirement they deserve.
Where can I get more information?
(1) Employers are eligible for up to $5,000 tax credit per year for 3 years, up to a maximum tax credit of $15,000. Full details here.
(2) 401(k) maximum savings per year: $19,500 for savers under 50 years of age, and $26,000 for savers 50 years of age and over.
(3) Average of asset-based fees + fund fees (may change based on fund allocation).
(4) CalSavers Roth IRA allows post-tax deferrals only, however, employees may convert their Roth deferrals to pre-tax at any time.