Here is everything you need to know about CalSavers

A 2024 AARP survey found that 1 in 5 Americans over 50 have nothing at all saved for retirement — which is one reason why it's so important for businesses to help their employees save for the future.

Retirement plans, such as 401(k)s and IRAs, can offer significant tax advantages for savers — and employees are much more likely to save for retirement when their company offers a retirement plan. A Transamerica Institute survey shows that nearly nine out of ten workers whose employers offer a plan are saving for retirement in some form. Still, many employers don't offer retirement plans — which can limit access to savings for millions of Americans.

That's where California's state retirement mandate comes in.

California is home to more than 4.2 million businesses state-wide — of which ~400,000 have under 5 employees. To help more people save for retirement, the Golden State introduced an initiative in 2019 called the CalSavers Retirement Savings Program, or CalSavers for short, to expand access to workplace retirement plans.

In 2025, CalSavers remains a critical compliance requirement for California employers. Businesses with one to five employees must register or certify exemption by December 31, 2025 — or risk fines of up to $750 per employee. However, our research shows that three quarters of affected small business owners aren’t even aware of the deadline.¹

If you’re one of the estimated 400,000+ CA businesses with one to five employees that will have to comply with California’s mandate by the end of the year, we've outlined what you need to know about the CalSavers program, how it works, pros and cons of the state Roth IRA, and why many employers are transitioning to more robust options like Guideline 401(k) plans.

What is CalSavers?

CalSavers is California’s state-sponsored retirement savings program for employees without employer-sponsored retirement plans. The program enables eligible employees to automatically contribute a portion of their paycheck to a Roth IRA, helping them save, in 2025, up to $7,000 a year or $8,000 a year if they're 50 and over.¹

California’s retirement mandate began its rollout in 2020, requiring businesses to opt into the CalSavers program or offer some other retirement plan by a set of deadlines based on their number of employees. The adoption deadlines for businesses with five or more employees passed in 2022, but legislation passed that same year expanding the mandate to include businesses with one to five employees by December 31, 2025. This means that all California employers will be required to offer a retirement program by the end of 2025.¹

While opting into CalSavers can be a quick fix for your business, you may want to consider other options that offer more flexibility for employees and could be easier for you, as the employer, to manage. For example, offering a standard 401(k) would allow you to make employer contributions in addition to your employee’s paycheck deferrals, helping them put away more savings — and helping to make you a more attractive employer.

How does CalSavers work?

Program structure and contribution limits

With CalSavers, employees are only eligible to contribute to a Roth IRA, and they are automatically enrolled in the plan if their employer opts in to the program. Funds will be deferred from their paycheck each month unless they choose to opt out.

CalSavers does offer several investment options, so your employees can decide how they invest their money. Employees can choose from target-date funds, a money market fund, a core bond fund, a global equity fund, and an Environmental, Social, and Governance (ESG) fund.

The contribution limit for Roth IRAs in 2025 is up to $7,000 or $8,000 for savers 50 and older. For comparison, this is less than half of the annual limit for a 401(k) ($23,500 in 2025). However, employees earning more than the Roth IRA income limit can still contribute by recharacterizing their plan to a traditional IRA. To do so, they need to submit a form to CalSavers every year.²

What are the pros and cons of CalSavers?

While CalSavers can be a good option for small businesses looking to meet the mandate, it isn’t necessarily the best choice over all. Here are some pros and cons to help you decide whether CalSavers is the best fit for your team.

CalSavers for employers: Requirements, compliance, and deadline information

Who is required to register for CalSavers?

As of now, employers in California with five or more employees must register for CalSavers or file an exemption. Your business may be exempt if you already offer a qualified retirement plan or if you're self-employed with no W-2 employees.

All Golden State employers with one or more employees will be required to give employees access to CalSavers or a separate company-sponsored retirement plan by the end of 2025.

Adoption deadlines were based on employee headcount and are as follows:

With the December deadline looming, all businesses with employees are encouraged to register and get into compliance as soon as possible — enforcement efforts are already in effect for businesses with more than five employees. To opt in to the program, share employee information, and set up payroll deductions, visit the CalSavers website.

If employers miss adoption deadlines or fail to allow employees to participate in the program, they can face penalties of up to $250 per employee if they don't comply within 90 days of receiving notice. There is an additional penalty of $500 per employee if the employer fails to comply within 180 days of receiving notice, bringing fees to a total of $750 per employee if you miss your deadline by 180 days. The longer you stay out of compliance, the more fees you can accrue — you could get charged another $500 per employee every year if you don’t get things sorted.¹

If this is your first time offering a retirement plan, CalSavers can be a relatively easy option to fulfill the retirement mandate and get your team saving. However, if you're looking for more flexible options that could potentially help both your employees save more and are easier to manage, this could be a good time to consider starting a 401(k) instead.

Tax implications of CalSavers

CalSavers is a Roth IRA, meaning that contributions are made with after-tax dollars, essentially securing tax benefits for the future. Once contributed, earnings grow tax-free — as long as you do not need to withdraw the funds before age 59 ½. If you do, the withdrawn earnings may be subject to a 10% penalty and taxed as income the way early withdrawals are with a traditional 401(k). Withdrawals after retirement are tax-free.³

On the other hand, a traditional IRA or 401(k) plan can lower your taxable income in your contribution year. You get the tax benefits upfront by contributing pre-tax dollars from your paycheck, and distributions after retirement are taxed as ordinary income. Each tax treatment has its benefits depending on an employee’s age and financial situation, but for many workers who rely on the majority of their paycheck month-to-month, tax savings upfront may be more attractive.

One other tax implication to consider is tax credits. While the CalSavers program doesn’t offer a tax credit for employers who opt in, the SECURE 2.0 Act of 2022 features multiple employer tax credits to incentivise businesses to offer retirement benefits. Between the startup tax credit, automatic enrollment credit, employer contribution cost credit, and military spouse credit, businesses can receive up to $16,500 in tax credits for the first three years they offer a retirement plan. These credits can cover 100% of the employer cost for a plan like Guideline’s during that time.⁴

Estimate your 401(k) plan costs with our calculator

How much does CalSavers cost for employers?

CalSavers is completely free for employers. It neither requires any employer fees nor employer match contributions.

Your employees, though, will pay $17/year in administration fees to participate in CalSavers. There is a fixed quarterly account fee and, depending on which investment options they select, they will be required to pay expense ratios on the program’s investments at ranging from 0.325% to 0.49%. The fee will be pulled directly from the assets in their Roth IRA.⁵

"State retirement programs aren’t really free. You need to consider the administrative labor added to every payroll run. Going with our state program meant manual calculations, dealing with employee information changes, and managing money movement."

Rich H.

Pallas Care
Client of Guideline. Views may not be representative of other clients

While the state plans to reduce participant fees as participation thresholds are met, the fees can be considerably higher than they would be for company-sponsored plans. For example, a modern 401(k) provider like Guideline's managed portfolios have blended expense ratios ranging from .058% to .061% of assets under management, and an account fee between 0.15% to 0.35%. Lower fees could mean more money going towards employees' savings.⁶

And of course, bear in mind the penalty fees for non-compliance, which escalate depending on your number of employees and the amount of time since the deadline has passed for your company’s size.

Employer resources for navigating the CalSavers mandate

Here’s a step-by-step guide for employers who may be impacted by California’s state mandate:

Step 1: Determine your mandate status

If you have five or more employees and do not sponsor a retirement plan, you will need to register with CalSavers or set up a qualifying alternative, like a Guideline 401(k), immediately. If your business has one or more employees, the mandate will go into effect for your company on December 31, 2025, so you’ll need to register with CalSavers or offer a Guideline 401(k) or any other qualifying plan no later than that date.¹

What if I’m self-employed or only have contractors? If you don’t issue W-2s to anyone other than yourself, this mandate doesn't apply to you.

But if you still want to save for retirement (and get the tax benefits), you can open a Solo 401(k) with Guideline — a potentially great option for self-employed individuals who want high contribution limits and flexibility.

Step 2: Register or request an exemption to opt out

To start a registration or request an exemption, you will need:

You may be exempt from the mandate if your company:

To apply for an exemption or opt out from CalSavers, you’ll need to submit your exemption reason and supporting documentation for review.

When you’re ready, register or submit your exemption request here.

Step 3: Add employee information

After you register, you have 30 days to upload a roster of your eligible employees. CalSavers will contact them with follow-up steps, including how to customize their accounts and make elections, or instructions for opting out. After you upload your roster, a 30-day window begins for your team to make changes to their account or opt out before payroll deductions kick off. Employees that don’t take any action will be automatically enrolled in the program.

You’ll mainly be waiting during this 30-day period, but there are a few tasks that can set you up for success, like notifying your team that you’re participating in CalSavers and what they should expect.

Step 4: Submit employee contributions

Starting on the first payday after the 30-day window, you will be required to send contributions from your employees’ paychecks to the program. You can enter their contributions online through your account or with the Employee Contribution Template. Make sure to submit the contributions within seven days of taking the money out of your employees’ paychecks.

Ongoing responsibilities

CalSavers isn’t seamless. Unlike other options, like Guideline, that can sync with payroll automatically, once you're enrolled in CalSavers, you're responsible for managing everything manually — every single payroll period.

That means:

You’ll get notifications when employees make changes, but it’s up to you to keep everything updated.

CalSavers for employees: Key resources

Enrollment process

Employees will receive information and instructions once their employer registers for the CalSavers program. Employees can still sign up for CalSavers if their employer opts out, so long as they meet the following criteria:

CalSavers features automatic enrollment, which means if employees take no action within the 30-day enrollment period, they will automatically opt into the program with default elections. From there, a percentage of each paycheck will be withdrawn and contributed to their Roth IRA. CalSavers also automatically increases employees’ savings rate by 1% annually until it reaches 8%, though employees can decline this feature.

Employees may choose to modify their savings rate and their investment options, or opt out of the program at any time. They can opt out online through their account, by mailing in an opt-out form, or by calling (855) 650–6918.

CalSavers alternatives

Employers can also choose to offer private retirement plans. A 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 can enable business owners and employees to potentially save more for retirement.

Plus, as we’ve mentioned before, businesses starting a 401(k) for the first time may be eligible for multiple tax credits under the SECURE Act worth up to $16,500 over three years.

Guideline 401(k) vs. CalSavers

Let’s take a closer look at how CalSavers stacks up against Guideline’s Standard 401(k) offering.

Some Guideline customers started off with CalSavers and experienced some challenges.

After switching to Guideline, 93% of those employers spent less time on admin and 100% were able to eliminate payroll or admin errors. Guideline’s customer support and investment experience for employees also set their retirement plans apart from CalSavers for those who switched.¹³

How to transition from CalSavers to a 401(k) plan

If you’ve already opted into CalSavers but are interested in transitioning to a 401(k) plan, here are some steps you could take to get you started:

Step 1: Evaluate the right 401(k) provider

Research 401(k) providers that support small business plans and consider these options:

Guideline, for example, offers digital plan management, automated reporting, and built-in IRS compliance tools, such as automatic Form 550 prep, real-time contribution monitoring and guardrails that help plans stay within IRS limits.

Step 2: Set up your new 401(k) plan

Once you've chosen a provider, complete their setup process. This typically involves selecting plan features, including Roth vs. traditional, eligibility, vesting, matching contributions, etc. You’ll also need to set a plan start date and establish your plan document with your chosen features (required by the IRS).

Pro Tip: Choose a start date that aligns with your payroll cycle to help simplify contribution tracking.

Step 3: Notify employees

You are legally required to provide a summary plan description (SPD) to eligible employees within 90 days of creating the plan as well as distribute any additional notices (Safe Harbor, auto-enrollment, etc.) depending on your plan design.

Step 4: Request an exemption with CalSavers

Submit a formal exemption request by going to CalSavers.com. Log in and submit your exemption form indicating your new 401(k) provider, and keep the confirmation for your records.

Step 5: [Optional] Roll over existing accounts

Employees (and business owners) can roll over funds from CalSavers, SEP IRAs, or traditional IRAs into the new 401(k) plan:

Important: Ensure the receiving 401(k) plan accepts rollovers, and document the transaction for IRS reporting.

Step 6: Integrate payroll and begin contributions

Coordinate with your payroll provider to start salary deferrals, set your employer contributions (if applicable), and track limits to ensure pre-tax/Roth categorization is accurate. For example, with Guideline, these tasks are automated via integrations with most major payroll systems.

Step 7: Maintain ongoing compliance

Your responsibilities include:

Many 401(k) providers, like Guideline, automate these compliance steps so you can focus on your business.

In summary, here are just a few benefits of transitioning to a Standard 401(k) dependent on the plan provider:

Fulfill the mandate — and give your employees a powerful retirement option

With the final deadline for California employers fast approaching, we believe this year is a great opportunity to partner with Guideline to offer a flexible and cost-effective retirement plan for your employees. But regardless of the program you choose, know that once you’ve made a choice for your business, you will be supporting your team’s financial future as well as potentially saving your business hundreds if not thousands of dollars in fees come the new year.

For more information on CalSavers, visit their official website. Or if you’re ready to get started with Guideline, click here.