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Here is everything you need to know about CalSavers
Public policy 401(k)

Here is everything you need to know about CalSavers

Nicolle Willson, J.D., CFP®, C(k)P®

With one in five Americans having saved nothing for retirement, it’s more important than ever for businesses to help and encourage their employees to save for the future. Retirement plans, such as 401(k)s and IRAs, may offer significant tax advantages for savers. Employees are 15 times more likely to save for retirement when their company offers a retirement plan. Still, many employers don’t offer retirement plans—leaving over 7.5 million California workers without access to workplace retirement plans.

That’s why the Golden State is taking matters into its own hands. To help encourage more individuals to save for retirement, California introduced a new initiative last year called CalSavers Retirement Savings Program, or CalSavers for short. The program enables eligible employees to automatically contribute a portion of their paycheck to a Roth IRA—helping employees save up to $6,000 a year, or $7,000 a year if they’re age 50 and over.

With the first adoption deadline quickly approaching, we’ve outlined everything you need to know about the CalSavers program, how it impacts your business, and how you can prepare.

Is the retirement mandate mandatory or optional?

All Golden state employers with 5 or more employees are required to give employees access to CalSavers, unless they offer a company-sponsored retirement plan, like a 401(k) plan.

When will the retirement mandate go into effect?

Any business with 5 or more employees is required to adopt the new program, but adoption deadlines depend on employee headcount and are as follows:

  • Businesses with more than 100 employees: September 30, 2020
  • Businesses with more than 50 employees: June 30, 2021
  • Businesses with 5 or more employees: June 30, 2022

While companies with 5 or more employees have more than two years to make the switch, the deadline for mid-sized businesses is quickly approaching. Although originally June 30, 2020, the deadline for small and mid-sized businesses to adopt CalSavers has been extended to September 30, 2020. On that date, companies with 100+ employees will have to either give employees access to the CalSavers retirement savings program or offer a company-sponsored alternative.

To opt-in to the program, share employee information, and set up payroll deductions, visit the CalSavers website for a step-by-step sign-up guide.

How much will it cost my business?

Your employees will pay administration fees to participate in the program. Depending on which investment options they select, your employees will be required to pay an annual fee ranging from 0.825 to 0.95%. The fee will be pulled directly from the assets in their Roth IRA. CalSavers is completely free for employers. There are no employer fees and CalSavers does not allow for employer match contributions.

What are the alternatives to the CalSavers program?

Employers can also choose to offer private retirement plans. The most common alternative is a 401(k) plan. 401(k) plans have higher contribution limits, allow for matching and profit-sharing, and offer both Traditional and Roth options. As a result, 401(k) plans would allow business owners and employees to potentially save more for retirement.

CalSavers Guideline 401(k)
Only Roth IRA.

Savers have the option to recharacterize their contributions as a Traditional IRA.
Offers both Traditional & Roth 401(k) contributions
Auto-enrollment 5% & auto-escalation up to 8%.

Savers can choose an alternative contribution rate and opt out of automatic escalation.
Auto-enrollment

Participants can choose an alternative contribution rate.
Employees pay for plan administration No cost for employees & low cost for employers. Guideline starts at $39 + $8 per month2
Employers cannot make contributions Employees can contribute up to $19,500 (2020)

Employers can make contributions for total savings up to $57,000 (2020)

Is auto-enrollment available?
Yes, auto-enrollment is offered under the state-sponsored plan. Once your company opts-in to the program, your employees will receive an email containing plan details and default elections.

Thirty days later, the deductions will be automatically withdrawn from their next paycheck and deposited in their Roth IRA.

Of course, employees are welcome to opt-out of the program at any time, which they can do online or by contacting CalSaver’s client services.

What types of retirement plans are available to choose from?

With CalSavers, employees are only eligible to contribute to a Roth IRA. CalSavers does offer a few investment options, so your employees can decide how they invest their money. Employees can choose from target-date funds, money market funds, core bond funds, global equity funds, and sustainable balanced funds.

What will happen if I miss the program adoption deadline?

If employers miss adoption deadlines or fail to allow employees to participate in the program, they can face penalties of $250 per employee if they don’t comply within 90 days of receiving notice. The penalty then increases to $500 per employee if the employer fails to comply within 180 days of receiving notice.

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Whether you choose to offer CalSavers or opt for a company-sponsored 401(k) plan, what’s important is that you’re giving your employees access to retirement benefits and helping them plan for a better future.

With the new retirement mandate, small businesses are required to help their employees save for retirement. If this is your first time offering a retirement plan, CalSavers is a great option to fulfill the retirement mandate. If you’re looking for more flexible options that could potentially help you save more, this could be a good time to consider starting a 401(k) instead. Guideline makes it easy and affordable for small businesses to start and administer a 401(k). Schedule a time with our team to learn more.

The information provided herein is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided herein.


¹ Represents the blended average AUM fees for the funds in Guideline’s managed portfolios.

² View Guideline's full fee disclosure at my.guideline.com/agreements/fees.