What Business Owners Should Know About CalSavers
posted by Fisher 401(k) August 17, 2020
It’s no secret the average American worker isn’t financially prepared to afford a dignified retirement. In an effort to help remedy this, the state of California has implemented a new law mandating employers to provide a retirement plan to their employees, and has created a state-run retirement program. The program is called CalSavers, and it’s important for business owners to understand the details of the program in order to determine if it’s the right plan for their business. See below for a list of Frequently Asked Questions about CalSavers.
What is CalSavers?
CalSavers is a law mandating all California business owners with 5 or more employees to provide a retirement plan to their employees. The mandate is effective starting September 30th 2020, and requires business owners to either sponsor a 401(k) plan (or other qualified retirement plan) or adopt the state-run CalSavers retirement plan.
How does the CalSavers plan work?
The CalSavers plan is a payroll-deducted Roth IRA that is run by the state of California. If an employer adopts the CalSavers plan, all of their W-2 employees are eligible to participate (including part-time workers). The program is auto-enrolled at 5%, which means that unless employees proactively opt out they will be automatically enrolled to contribute 5% of after-tax income into the plan.
What features are included in the CalSavers Plan?
The CalSavers plan includes the following features:
- Auto-enrollment at 5% (i.e. employees will be automatically enrolled to contribute 5% in the plan unless they proactively opt out annually)
- Auto-escalation (i.e. employee contributions will be automatically increased by 1% annually (up to 8%) unless they proactively opt out annually)
- Annual contribution maximum of $6,000
- Roth only contributions (no pre-tax option)
- Does not allow loans
- Does not allow employer contributions
- Limited to employees with annual income < $135,000
Do employers have to offer the CalSavers Plan?
California business owners do have to offer a retirement plan, but it doesn’t have to be the CalSavers Plan. Business owners who offer a 401(k) (or other qualified retirement plan) are exempt from the mandate. Other qualified retirement plans could include 403(b), SEP IRA, and SIMPLE IRA.
How does CalSavers compare to other plan options?
See how CalSavers compares to other retirement plan options in our chart below, or by clicking here.
Does CalSavers Apply to All Businesses?
CalSavers applies to any employer who has 5 or more W-2 employees in California. This includes non-profits, as well as out of state businesses with employees who reside in California.
When is the deadline to implement a retirement plan in California?
The deadline to implement a retirement plan in California depends on how many W-2 employees your business has:
What are the penalties for non-compliance with CalSavers?
Companies who fail to comply with the CalSavers mandate could be subject to a fee of up to $750 per eligible employee.
Good news, it’s really easy to comply by setting up a 401(k) plan (or other qualified plan)—click here to find out how.
How much does CalSavers cost?
The CalSavers plan cost ranges from .82% to .95% of assets; this fee is deducted from each employee account balance. For example, if an employee has $100K in the retirement plan, $820-$950 a year will automatically be deducted out of their balance. There is no direct cost to the employer, but there are many ongoing tasks the employer must perform in order to administer the CalSavers plan.
What do employers have to do to administer the CalSavers plan?
- CalSavers creates a significant administrative burden for the employer. Employers must:
- Submit an employee census to CalSavers annually
- Track eligibility status for all employees
- Provide enrollment packets to all employees 30 days after date of hire
- Track whether each employee has opted in or out
- If employee doesn’t opt out within 30 days of notification, set up 5% payroll deduction
- Answer questions from employees who have been auto-enrolled
- Manually auto-escalate all employees annually (unless they’ve opted out)
- Repeat auto-enroll process annually for all employees who have opted out
- 6-month look-back for auto-escalation:
- Track if employee has been participating for 6 months with no auto-escalation
- Provide 60-day notice that they will be auto-escalated Jan 1st if they do not opt out again
- Hold open enrollment every 2 years
- Auto-enroll anybody who hasn’t been participating for at least 1 year (these have to be tracked)
Fisher Investments provides affordable, hassle-free solutions that reduce the administrative burden on employers. Explore your options here.