On September 29, 2016, Governor Jerry Brown signed into law Senate Bill 1234, also known as CalSavers. CalSavers mandates that all California employers must offer either a retirement plan for their employees or join the CalSavers program as an alternative. The program defines employees as anyone over the age of 18 who are paid by W-2 and worked for at least 30 days.
About the CalSavers Program
The CalSavers program offers Roth IRAs to employees. Eligible employees are auto-enrolled at 5% of the pay contributed to account and are responsible to know if they are eligible for Roth contributions, as income limits still apply. There is an option to opt-out if they are already committed to a retirement plan. Other characteristics of the program include:
- No employer contribution
- Requireing eligible employees to pay all fees
- Very limited investment choices.
Employers with employees in the CalSavers program are required to submit and keep updated employee census and track all eligible employees. They can face penalties for non-compliance.
Alternatives to the CalSavers Program
- Establishing a 401K Plan. In a 401k plan, tax deferrals are better for higher wage earners. Employees can design their plan strategically for maximum contributions. The Roth option also comes with no income limits. The 401K plan can provide employer match and profit sharing.
- Pooled employer plans. This plan is significantly lower in costs and eliminates individual plan 5500 filing and annual audits. It can be the turnkey solution for employers to meet CalSavers requirements and establish low cost. Pooled employer plans are an easy-to-use retirement plan.
The deadline to enroll into the CalSavers program are as follows:
- September 30, 2020 for companies with 100+ employees.
- June 30, 2021 for companies with 50+ employees.
- June 30, 2022 for companies with 5+ employees.