CalSavers Retirement Savings Program

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Calsavers is a program designed to encourage California’s private sector employees to invest in retirement savings by offering a convenient, voluntary, low cost, and portable option. This article seeks to break it down so that as a private sector employer or employee you know what to expect.

Fast Facts of the Program

  • Enrollment requirement depends on head count:
    • More than 100 employees? You are subject now and need to register.
    • More than 50 employees? Your deadline to register is June 30, 2021.
    • 5 or more employees? Your deadline to register is June 30, 2022.
    • If you have less than 5 employees, you are not subject to these requirements (but will become subject to the requirements if you grow to five or more)
  • If you already offer an employer-sponsored retirement plan, you are not subject to these requirements.
  • You do not need to wait for your tier deadline to register – registration is open now.
  • It is a no cost program for employers.
  • Although employers may be required to register, employee participation is 100% voluntary.
  • Sole proprietors and partners of partnerships are eligible if the business otherwise qualifies as eligible employer.
  • The CalSavers Website has many resources for employers regarding both registration and employee communications.

Employers

The CalSavers program requires certain California employers to facilitate this program. Other employers will be exempt. See the categorizations below.

  • Employers with an existing employer-sponsored retirement plan: CalSavers does not apply. If you have an employer-sponsored plan, you have no further action required regarding CalSavers.
  • Employers without an employer-sponsored retirement plan: Required by state law to facilitate CalSavers if they have five or more employees. Deadlines:
    • More than 100 employees register by September 30, 2020 (Deadline Passed)
    • More than 50 employees register by June 30, 2021
    • 5 or more employees register by June 30, 2022
    • All eligible employers can register at any time prior to their registration deadline if they would like to facilitate this earlier than their required deadline

NOTE: Employers with less than 5 employees now should consider their requirement if they expect to exceed 5 employees at a later date.

Employers should consider whether they want to facilitate a CalSavers plan or implement their own employer-sponsored retirement plan. There are many options available including self-administered plans such as SIMPLE and SEP IRAs or seeking a third party administered plan such as a 401(k) or other benefit plan.

Steps for Employer Facilitation of CalSavers

  • Register business for the plan
  • Upload employee information
  • Facilitate automatic contributions from participating employees
  • Remit contributions in one transfer per pay period
  • Ensure payroll is up to date for new hires

Potential Advantages for Employers

  • No fees for employers
  • Employers are not fiduciaries
  • No employer liability
  • No annual reporting tasks
  • Once the employer provides the employee list to CalSavers, CalSavers will communicate directly with employees regarding any changes to their account going forward

Employees aka “Savers” under CalSavers program

CalSavers will set up an IRA account for the Employee. The Employee will contribute to their own retirement savings through an automatic payroll withholding deduction that will be directed to their IRA.

The CalSavers IRAs are defaulted as Roth IRAs. Only those Employees who are eligible to contribute to a Roth IRA should opt in. Each employee will need to review the Roth IRA Contribution Limits per Tax Year and whether they qualify to make a contribution.

CalSavers does offer an election to recharacterize your Roth IRA contributions to a Traditional IRA. A special election form is required to do so. A traditional IRA contribution may be deductible on the Employee’s tax return, however they should seek guidance from a tax advisor.

Features of CalSavers Program for Employees “Savers”

  • Simple form to opt in or out
  • Default contribution rate is 5%, with 1% automatic escalation to 8% (participant may change the rates at any time)
  • Default is Roth IRA, but Traditional IRA is an elective option
  • Investments allow for 5 options, default for the first $1,000 contributed is a Money Market with subsequent contributions defaulting into Target Date fund (Asset Allocation based on age and automatically adjusts over time)

Employees should consider the Tax and Penalty implications of Roth and Traditional IRA distributions. Seek guidance from a tax advisor. As always, Wheeler is here to help. Reach out to your advisor, or contact us at email@wheelercpa.com.

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