The California Legislature has passed a new mandatory law requiring companies with more than five California-based employees (one of whom is at least 18 years old) to offer a retirement plan to their employees and report their compliance with the law by June 30, 2022 at https://www.calsavers.com/. Employers have the option of providing a qualified private-market plan, such as a 401(k), or going with the state-run CalSavers program. Employers that do not comply with the mandate will face fines from the Franchise Tax Board.
What is CalSavers?
California has been endeavoring to make low-cost retirement savings tools available to all workers. Studies show that more than 7.5 million California workers - disproportionately women and people of color who work for smaller businesses - do not have access to these savings tools.
CalSavers attempts to close the gap by presenting an affordable way for workers to save for retirement. Through CalSavers, employers can help their employees save in an Individual Retirement Account ("IRA"). There are no start-up costs to enroll in CalSavers, no administrative costs, and the law removes fiduciary responsibility from employers, making it more simple to manage. If employers choose CalSavers, employees are automatically enrolled unless they explicitly opt out. Employees enrolled in the plan have the ability to select their own contribution rate, stick with the default contribution, or opt out entirely. In addition, employees can select investment funds from a simplified menu or use the default target date fund.
Can California Employers Opt Out of CalSavers?
Employers can decide to forgo the Calsavers program and instead offer their employees a privately-sponsored plan owned and controlled by the company.
Some approved alternatives include: 401(k) plans, a 408(k) Simplified Employee Pension plan, a 408(p) SIMPLE IRA plan, a 401(a) qualified plan (including profit-sharing plans and defined benefit plans), and 403(a) or 403(b) annuity plans.
If an employer already provides a qualified private-market retirement plan, the employer must file an exemption on the CalSavers website (https://www.calsavers.com/) by June 30, 2022. If an employer does not currently offer any retirement plan and does not wish to enroll their employees in the CalSavers program, the employer can set up a private-market retirement plan and, likewise, report an exemption by the deadline.
Many exempt employers have already been pre-cleared. However, if an employer received a notification from CalSavers and believes it is exempt, the employer must file their exemption on the CalSavers website.
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