CalSavers: California State Retirement Program

What is CalSavers?

CalSavers is the state of California’s new program designed to give employees access to a retirement savings plan when their employer does not offer a private plan. CalSavers gives employees access to individual retirement accounts (IRA’s) that they are able to defer into directly from their paychecks. Employers who have workers in California will have the option to join the program, at no cost to them, or begin their own private retirement plan. CalSavers will require that employers who do not offer a private plan and have more than 100 employees join the program by June 30th, 2020. Employers who have more than 50 employees will be required to join by June 30th, 2021, and employers with 5 or more employees will be required to join by June 30th, 2022. 

What does this mean for employers?

Companies with 5+ employees who work in California will have the option to either join CalSavers by the state mandated deadline, or start their own qualified private retirement plan (401(k), 457, etc.). Employers who do not comply will be subject to penalties for non-compliance. 

Employers who already offer a qualified retirement plan are exempt from the requirement to join CalSavers by the applicable deadline and will be required to register their exemption through the state. Which can be done here.

Employers who do not offer a plan can request an access code and begin their registration with the state. Once they are registered with the program and CalSavers has been set up, employers’ only responsibilities will be to add and remove employees and remit payroll contributions. There will be no additional administrative requirements or fees for employers. The program is overseen by the California Secure Choice Retirement Savings Investment Board, and they will manage the fiduciary duties for the plan. 

What does it mean for employees?

Employees will have access to the plan immediately upon starting work with a participating employer. If they do not actively enroll in CalSavers they will be auto-enrolled within 30 days of beginning employment. If the employee does not want to participate they will be allowed to opt-out online or by completing a paper form. Employees who are auto-enrolled into the plan will have a set deferral rate of 5%, with a 1% increase every year until a cap of 8% (reached at year 4). This can be changed at any time by employees logging into their account and selecting a different deferral rate.

It is important to note that CalSavers has a re-enrollment period two years after opting out of the plan. That means employees who have opted out previously will be re-enrolled in CalSavers and will then have to opt out again at the two year mark. 

CalSavers is a Roth individual retirement account (IRA), that means funds are contributed on an after-tax basis. Since the money invested has already been taxed, all contributions and earnings are completely tax free at retirement!* CalSavers is an IRA account so it is subject to the same restrictions of other IRA accounts including:

• Maximum contribution limits, $6,000 for 2020, $7,000 if you are over the age of 50, 
• Income restrictions.

 For more information on income restrictions please visit the IRS website here.

One of the biggest benefits of CalSavers is that the plan is portable. That means the employee will be able to keep their CalSavers account even as they change employers through their working years.

*earnings may be subject to a 10% penalty if you are under the age of 59 ½ or have not held the account for longer than 5 years.

401(k) or CalSavers

CalSavers is a great option for employers who are not able to provide their employees with a qualified private retirement plan. There are however a few big differences in benefits illustrated in the chart below:

For more information on CalSavers please visit their site or they can be reached by the information below:

Employer Assistance: (855) 650 - 6916

Employee Assistance: (855) 650 - 6918

clientservices@calsavers.com