Everything you need to know about CalSavers, California’s state-run retirement program
The small business owner’s guide to navigating state mandated savings plans
Beginning July 1, 2019, the small business landscape in California will begin changing, and soon, it’ll look different than it does now—in a big way.
But let’s backtrack for a second.
There’s long-since been a coverage gap in the retirement industry, specifically as it relates to small businesses. In fact, only four in ten small businesses offer any type of retirement benefit to employees, making it a serious challenge for those employees to properly prepare for a financially-secure retirement . Now, the California state government is stepping in to tell small business owners that they’re going to have to start offering a retirement plan to their employees, whether they want to or not.
What is CalSavers?
Formerly known as California’s Secure Choice savings program, CalSavers is a state-run retirement plan that will ensure roughly seven million California workers have access to a retirement savings program through work—and often-cited statistics show that Americans are 15 times more likely to proactively save for retirement when they have a savings plan available through their job . The benefits of the program are potentially long-lasting; when more people today have the ability to save for their retirement, fewer future senior citizens will have to rely on taxpayer-funded public assistance in poverty. And with nearly half of all of California’s workers on track to retire with incomes equating to just $24,000 per year—twice the federal poverty figure—the necessity of the mandate becomes clear .
You might also be interested in: Why are states beginning to mandate small business retirement plans?
California state mandated retirement program details
While the state mandated program was ultimately designed to close the coverage gap and limit the number of workers in California that don’t have access to a retirement savings plan, it was also designed to give employers a simple, cost-effective, hands-off approach at helping their employees prepare for their future retirement.
The CalSavers plan was set up as a payroll deducted auto IRA plan, automatically enrolling eligible employees at a 5 percent contribution rate with 1 percent auto escalation, up to 8 percent of the worker’s salary. Employees can opt in or out of the program at any time, and the account stays with them even if they change jobs. Eligible workers who don’t proactively opt out of the plan will be automatically enrolled 30 days after their hire date or eligibility date, and their contributions are fully vested from Day 1.
Business owners are also eligible to participate in CalSavers, but only if they are also an employee of the business they own. If they’re not an employee and would still like to contribute, they may do so, but contributions will have to be made from their bank account rather than via payroll deductions. This same process applies to self-employed workers who would like to participate.
How will CalSavers affect small business owners in California?
To be frank, the CalSavers retirement savings program may have a substantial impact on small business owners—but only in the way of helping their employees save for a financially-secure future. In reality, small business owners will play a limited role in the overall operation and day-to-day maintenance of the plan, with no fiduciary responsibilities, no plan fees to pay, no annual reporting tasks, and no real decisions to be made. The only real responsibilities the employer will have is to register for the plan, set up the account, and submit participating employees’ contributions via payroll deduction.
We know what you’re thinking, “Do I have to register?”
Not necessarily—but in most cases, yes. If you have more than five employees, you will eventually be required to register for the CalSavers retirement program unless you already offer a qualified retirement plan or choose to start a qualified plan with a different provider. Which leads us to our next point—California’s state-run IRA program is not the only option you have. Employers who choose to offer another qualified plan, like a 401(k), 403(a), SEP plan, SIMPLE plan, payroll deducted IRA with auto enrollment, or qualified pension plan, won’t be required to register for the CalSavers retirement savings program.
In all other instances, yes, you’ll be required to register your business for California’s mandated retirement plan. It is called a mandate for a reason, after all.
CalSavers regulations, registration deadlines, and penalties
The CalSavers retirement program features a three-year phased rollout approach, staggering deadlines for registration based on employer size. That being said, any employer, regardless of size or enrollment deadline, can register to join the program at any time. That’s important to know because as we mentioned earlier, registration for CalSavers opens up in the very near future: July 1, 2019.
Business owners will need to adhere to the following registration deadlines:
The CalSavers program will contact you when your applicable registration deadline is approaching, and once you’re successfully registered, you’ll have a few more tasks at hand before you can “set it and forget it.” You’ll need to add delegates or payroll representatives, then create a payroll list with eligible, participating employees. Once your account is set up and ready to go, you’ll have to stay on top of maintenance tasks, like submitting contributions and ensuring your payroll is up-to-date with new hires.
If you fail to adhere to the above registration deadlines for your business, you’ll be subject to some pretty hefty penalties. If you don’t register in a timely manner, without good reason, you’ll receive a failure of notice to comply; if 90 days passes after receiving this notice and you still haven’t taken action to register for the program, you’ll be required to pay a penalty fee of $250 per eligible employee. If you wait another 90 days before acting, totaling 180 days after receiving the notice, you’ll be subject to an additional $500 penalty per eligible employee for failing to comply with the mandate.
Current status of CalSavers retirement program
The Pilot program for CalSavers has been underway since November 2018, and with 30 employers registered in Pilot 1, it’s already seen some encouraging results. Nearly 800 workers are enrolled in the program already, contributing an average of $45.14 per paycheck using a 4.95 percent average deferral rate. In total, the program has already accounted for $67,432 in assets from savers *.
Clearly, the program is working already. That being said, it’s important to remember that the state mandated auto-IRA is not your only option. The CalSavers retirement program will cover millions of savers in a one-size-fits-all fashion, but if we’ve learned anything during our 35 years in the retirement industry, it’s that retirement planning is anything but one-size-fits-all. Instead of utilizing a “cookie cutter” state plan design, consider a retirement savings vehicle that works in the best interests of both you and your employees. Small business 401(k) plans can be similarly cost-effective for the employer, and they offer more robust plan design options—allowing business owners to design a savings option that fits both their company and employee needs.
If California’s retirement state mandates will affect your small business in the coming years, it’s time to start weighing your options. But remember, you’re not in this alone. Let’s start the conversation by considering the retirement savings vehicle that allows for the highest annual contributions, offers tax deductions to both the employee and the employer, and ultimately, helps workers arrive at maximum retirement readiness. Let’s talk about the 401(k)—800.236.7400, Option 1.
For more information about CalSavers:
If you have additional questions about the CalSavers program, there are a variety of helpful resources available to you on the CalSavers website, here. If you’d rather speak with a representative from CalSavers for more information, call 855-650-6916 or email email@example.com.
 LIMRA research finds 4 in 10 small businesses currently offer retirement benefits, LIMRA, 2019.
 Retirement in America: Out of Reach for Working Americans?, National Institute on Retirement Security, 2018.
 A Dimming Dream of Retirement in California, UC Berkeley Labor Center, 2018.
 CalSavers Implementation Update, Agenda Item 5, California Secure Choice Retirement Savings Investment Board, 2019.
*CalSavers results as of 3/25/19.