California is among the first states in the nation to design a “state-run” retirement program enacted by the CalSavers Retirement Savings Trust Act. Any business with more than 5 employees that does not have a current employer-sponsored retirement plan MUST enroll in the program by the following dates:
- September 30, 2020, for businesses with 101+ or more employees*
- June 30, 2021, for businesses with 51+ employees*
- June 30, 2022, for businesses with 5+ employees
*For passed deadlines, enforcement actions are pending.
How does the program work?
CalSavers is a mandated Roth Individual Retirement Account with Automatic Contributions. Employees will be auto enrolled after 30 days and will begin saving through payroll contributions by their employer. The program defaults to a 5% contribution rate and will increase each year by 1% to a max contribution rate of 8%. Employees can elect a different amount or opt-out of the program.
What if the business has a retirement plan?
The business would be exempt from the CalSavers program if there is another retirement plan in place like a SIMPLE IRA, SEP IRA, 401k, 403b, or pension plan. If you do not have one of these plans you can create one to become exempt from CalSavers. If the business is exempt, CalSavers is asking employers to inform them of exemption status on the employer portal.
All qualified employers must:
- Register the business
- Create a payroll list and add employees
- Must enroll any W-2 employee that is 18 years old or older
- Must submit payroll contributions
All employees must:
- Make changes to contribution rates, if they do not want to contribute at the default rate of 5%
- Opt out if they do not wish to participate
- Monitor Roth IRA contribution limits
- Be aware of income contribution limits for Roth IRAs
- Choose an investment allocation, if they do not want to be invested in the default investment option
Bottom Line
Employers that qualify for CalSavers must act and cannot ignore this. There are hefty penalties if businesses fail to enroll. Talk with your CPA or financial planner to help ensure you and your business are handling this correctly. We are happy to discuss how this impacts you. To schedule a free consultation please email us at financialplanning@bfsg.com.
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