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On September 29, 2016, former California Governor Jerry Brown signed into state law senate Bill 1234 to implement the California Secure Choice Retirement Savings Program. The program was officially renamed the CalSavers Retirement Savings Program (“CalSavers” or “program”) in December 2017.
The program mandates that all private California employers with 5 or more full or part-time employees over age 18 offer a retirement savings vehicle or facilitate their employees’ access to CalSavers. The program is also available to self-employed individuals and any other savers that would like to participate.
Program oversight is provided by the CalSavers Retirement Savings Board, consisting of nine members, with the State Treasurer serving as chair. The Administration of program participant accounts is handled through a contract with Ascensus College Savings Recordkeeping Services, LLC. Investments are managed by BNY Mellon Investment Advisor, Inc., and State Street Global Advisors.
CalSavers enables eligible employees to automatically contribute a portion of their paycheck to a Roth IRA account that is established, operated, and maintained by the state. The automatic contribution rate is 5% of pay, with a 1% automatic escalation per year capped at 8%, and with annual contributions up to the maximum contribution limits. Each employee may elect a different amount, elect out of auto-escalation, or complete opt-out of the program.
Please note that CalSavers accounts are only Roth (post-tax) IRAs. It is the employee’s responsibility to apply their respective AGI Roth compensation limits (for the year 2021, modified adjusted gross income under $140,000 for single filers and $208,000 for married). Employers have no responsibility for highly compensated employees beyond notification of enrollment in the program. CalSavers will reach out directly to employees and provide all necessary information.
If the employer is required to enroll in CalSavers, employees with higher incomes may not be eligible to contribute to a Roth IRA. If the employee’s earnings are more than the Roth IRA income limits, they will need to opt-out of CalSavers or request to recharacterize contributions made to the program into a traditional IRA held individually by the employee. Recharacterization can be performed through online request, by phone at (855) 650-6918, or with a recharacterization election form.
The following is a summary of adoption deadlines, eligibility and exemptions, and employer and employee responsibilities.
There are three deadlines, depending upon the number of employees:
- September 30, 2020 – Employers with more than 100 employees.
- June 30, 2021 – Employers with more than 50 employees.
- June 30, 2022 – Employers with 5 or more employees.
Employer Eligibility and Exemptions
An eligible employer means a person or entity engaged in a business, industry, profession, trade, or other enterprises in the state, whether for profit or not for profit, excluding the federal government, the state, any county, any municipal corporation, or any of the state’s units or instrumentalities, that has five or more employees and that satisfies the requirements to establish or participate in a payroll deposit retirement savings arrangement.
An employer is exempt from the program if it offers a qualified retirement plan, including the following:
- 403(a) – Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan.
- 408(k) – Simplified Employee Pension (SEP) plans.
- 408(p) – Savings Incentive Match Plan for Employees of Small Employers
(SIMPLE) IRA Plan.
- 401(a) – Qualified Plan (including profit-sharing plans and defined benefit plans).
- 401(k) plans (including multiple employer plans or pooled employer plans).
- Payroll deduction IRAs with automatic enrollment.
All employers must register their business in CalSavers per the above adoption deadlines. Registration is facilitated through the CalSavers website. Employers that already provide a qualified retirement plan to employees must register for an exemption through CalSavers.
CalSavers is completely free for employers. The penalty for non-compliance is a minimum of $250 per employee, if not corrected within 90 days of receiving notice. Penalties increase to $500 per employee if non-compliance continues past 180 days of notice.
Employers are responsible for meeting their facilitation requirements as described in California law, including the following:
- Must create payroll list for eligible employees with basic employee roster information (name, date of birth, Social Security Number or ITIN, and contact information).
- Must enroll any W-2 paid employee after 30 days and at least age 18 regardless of part-time or fulltime status.
- Must submit contributions or delegate an approved payroll provider to submit contributions.
- Must add and remove employees once eligible or terminated.
- Must remain neutral about employees’ participation in CalSavers and direct them to the CalSavers website at www.calsavers.com for any information.
Employers have no responsibility for establishing, maintaining, or operating CalSavers. Specifically, employers may not:
- Determine the terms of the IRAs offered through CalSavers.
- Select which investment options will be made available.
- Make employer contributions to CalSavers (including matching contributions).
- Advise employees regarding whether or not to enroll in CalSavers.
- Take any other action related to the administration or operation of CalSavers beyond registering eligible employees and remitting payroll deductions.
Employees will be automatically enrolled in the program by an eligible employer. Employees pay all administration fees to participate in the program ranging from 0.825 to 0.95% per annum. All employee contributions are immediately 100% vested. Other employee responsibilities include the following:
- Are responsible for opting out, changing investment options and contribution rates, and re-enrolling (all done through CalSavers).
- Are responsible for monitoring the Roth IRA annual limits ($6,000 plus catch- up of $1,000 for 2020 and 2021).
- Must apply their respective AGI Roth compensation limit.
- Will select investments from listed funds (i.e., State Street Target Date, Money Market, Bond, Global, Sustainable Balanced).
More detailed information and disclosures about the program can be found in the Program Disclosure Booklet. Additional employer or employee questions can also be directed to CalSavers Client Services at (855) 650-6916 or emailed to firstname.lastname@example.org.
If you have any questions on the CalSavers program and how it may impact you or your responsibilities as an employer, please do not hesitate to reach out to us for assistance.