CalSavers Retirement Plan: What Small Businesses Need to Know

The ugly truth: 55 million Americans do not have access to a workplace retirement savings plan. This alarming situation is primarily due to a significant gap in coverage for small businesses from the retirement industry. In efforts to bridge that gap and improve retirement savings for millions of residents, the State of California joined many others in launching a new initiative to provide a program for small businesses.

What is CalSavers?

CalSavers is a state-run retirement program available to California workers without a workplace provided plan, self-employed individuals, and business owners. Through the program, participants can contribute up to $6,000 per year ($7,000 for 50 & older) to a Roth IRA via payroll deductions.

Business owners and self-employed individuals who do not receive payroll must make contributions through their bank account.

Eligibility

Eligible employers consist of companies with five or more employees. Every eligible employer is required by State law to facilitate the program or provide a private retirement program by the following deadlines:

• More than 100 employees: September 30, 2020- Passed
• More than 50 employees: June 30, 2021
• Five or more employees: June 30, 2022

Employers of all sizes can register for the program at any time but no later than the above deadlines.

Qualified private retirement plans include:

• 401(k) plans
• 403(a) plans
• 403(b) plans
• Simplified Employee Pension (SEP) plans
• Savings Incentive Match for Employees (SIMPLE) plans
• Payroll deduction IRAs with automatic enrollment

Employers offering a private retirement plan still need to register with CalSavers to certify their exemption. Failure to register for enrollment or exemption will result in non-compliance fees.

Registration

Registering for enrollment or exemption can be completed online through the CalSavers website with the following information:

• California Employer Payroll Tax Account Number (From EDD)
• Federal Employment Identification or Tax Identification Number (FEIN or TIN)
• Access Code from a notice received by CalSavers via email or letter in the mail  

Enrolling Employees

Once registered, you need to provide the following information for each current employee:

• Name
• Date of birth
• Social Security Number or individual taxpayer identification number
• Contact information

Full-time, part-time, and seasonal employees are all eligible for a CalSavers Retirement account. 

You will need to update your account with the same employee information as above for each new hire within 30 days of their start date. After being notified, CalSavers will immediately send your employees information about the plan. Everyone then has 30 days to review the information and elect to opt-out of the program.

For those who do not opt-out of the program, the automatic enrollment begins with a default contribution amount of 5% of gross pay. The employee can change contribution amounts at any time. However, if the default 5% is left unchanged, the contribution amount will increase by 1% each year until they reach the 8% maximum annual contribution amount.

Cost

Employers

CalSavers does not charge employers any fees or hold them to fiduciary responsibility. The responsibility resides with the program. There is also no option for an employer contribution match.

Employees

Employees are responsible for an asset-based administration fee of approximately 0.825% to 0.95% depending on investment choices. In other words, employees will pay between $0.83 and $0.95 per year for every $100 in their account. The fee will automatically deduct from their CalSavers account balance. 

To give you a comparison - fees for a private 401k but range from 1% - 3.5%

How it Works

With a Payroll Provider

When you register for CalSavers you can add your payroll provider as a representative. This allows your provider to submit the payroll files CalSavers needs on your behalf. 

Without a Payroll Provider

If you handle payroll in-house, you will be responsible for facilitating certain aspects of the program, like submitting your employees' contributions.

When you process payroll, you will deduct the designated percentage of each participating employee’s pay and submit it to CalSavers. The percentage for each employee will be shown on your employer account page. You can enter the information manually by using an online form or in bulk using the Employee Contribution Information Template.