If you are an employer in the state of California, you are hopefully already familiar with CalSavers, the state-run retirement plan option for employees.
On August 26, 2022, California governor Gavin Newsome signed into law Senate Bill 1126, which expands the current legislation that governs CalSavers. In this new bill, CalSavers is now available to any employer with five or more employees. Additionally, this law now sets a firm deadline for when employers with one or more eligible employees must have a payroll deposit retirement savings plan ready to go. Those that do not have an established plan must set one up by December 31, 2025.
What Is CalSavers?
CalSavers is a retirement savings program for residents in California. This savings plan is an automatic paycheck deduction that is then rolled into an IRA for the employee’s future retirement. Unlike other states who have instituted similar policies, California offers both a Roth IRA and a traditional IRA. Roth IRAs withdraw earnings post-tax and qualified withdrawals are not taxed. Traditional IRAs withdraw pre-tax and tax any qualified withdrawals as income.
This program is beneficial to employers because it doesn’t have employer fees or any kind of fiduciary responsibility. Furthermore, with minimal administrative responsibilities, it’s a relatively simple process for businesses to participate in.
This program is also beneficial to employees as it is a portable retirement savings plan, meaning it will follow the employee from job to job.
Is CalSavers Mandatory?
The simple answer is no, this program is not mandatory. However, it is one such program that meets the requirement that all qualified employers offer some kind of retirement savings plan to their employees.
Employer participation in the CalSavers program is only mandatory for those businesses that do not offer any kind of retirement benefits through the private sector such as a 401(k). With this new legislation, this regulation is now expanded to any employer with five or more employees.
Employers may decline participation in the CalSavers program, but only if they are offering something privately to employees. With low administrative costs and upkeep, it is advantageous to use this program over a private benefit program.
It’s also important to note that once an employer is enrolled in the program, they cannot pull out of the program unless they show evidence that they have switched employees to another qualified retirement program.
What Are the Next Steps?
As an employer, you need to determine how many people you employ. According to the CalSavers website, this number is determined by calculating the average number of employees you reported to the Employment Development Department of California on your last four DE9C filings.
If this average is five or more employees, you need to make sure you are offering a private retirement plan or making CalSavers available to your employees.
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