Should Your Business Sign Up for the CalSavers Retirement Savings Program? Pros, Cons, and Alternative Retirement Options
By the end of 2025, all California employers with at least one employee will have to offer a retirement benefit. The requirement is part of the CalSavers mandate, which is estimated to impact 4.2 million small businesses state-wide — of which 400,000 have under five employees.
Which begs the question: which retirement benefit should you offer your employees?
Luckily, you have a few options to choose from, such as the state’s CalSavers Retirement Savings Program — a Roth IRA. However, while the CalSavers Roth IRA is a helpful compliance option for businesses — especially if they’re worried about meeting the mandate — the program might not be ideal for helping to attract talent or for businesses that may need to re-think their benefits structure.
Keep reading to learn more about the pros and cons of the CalSavers program and what alternatives you can sign up for — like a Guideline 401(k) — to meet the state’s requirements.
Give your employees a roadmap to retirement
With Guideline, you can provide an impactful work benefit while minimizing paper work and fees
What is CalSavers and why was it created?
The CalSavers Retirement Savings Program — CalSavers for short — is a state-sponsored retirement savings program California employers have to opt into if they don’t already offer a qualifying retirement benefit.1
The program was created in 2019 after the state legislature passed the CalSavers Retirement Savings Trust Act, which aims to give all California employees access to an affordable, accessible retirement plan. The CalSavers retirement mandate is related to a broader legislative movement across the country aimed at helping more people gain access to retirement benefits.
Is CalSavers mandatory in California?
Yes, signing up for CalSavers or an alternative retirement plan is mandatory.
By December 31, 2025 all California employers with at least one employee will have to enroll or find a qualifying alternative.
If you already offer a qualifying retirement plan, you don’t have to use CalSavers — you’re already set once you record it with the state. In fact, many businesses do go with an alternative. According to 2024 data, the program’s exemption rate is 42% — meaning almost half of Golden State businesses choose an alternative to CalSavers (or were exempt due to religious, tribal, and government affiliations).
What do alternatives look like? At a high level, retirement plans that allow businesses to opt out of offering the CalSavers IRA include:
- 401(k): Employer-sponsored retirement plans, including multiple employer plans or pooled employer plans.
- 401(a): Employer-sponsored defined contribution plans, including profit-sharing plans and defined benefit plans.
- 403(a): Retirement plans for employees in the public sector, including qualified annuity plans or 403(b) tax-sheltered annuity plans.
- 408(k): Simplified Employee Pension (SEP) plans.
- 408(p): Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plans.
- Payroll deduction IRAs with automatic enrollment.
If skipping the mandate sounds more convenient, think again. For the first 90 days of noncompliance, the penalty is $250 per eligible employee. If you don’t comply within 180 days, you’ll be charged an additional $250 per employee. And, if you’re still not compliant after two years, you’ll be hit with an additional $500 per employee.
What are the pros and cons of CalSavers?
As a small business owner watching the calendar pages flip closer to December 31st 2025, it can be tough to decide which option is best for your business and your team. Here are some of CalSavers’ pros and cons to help you make the right choice.
CalSavers benefits: What’s good about it?
- It’s free for employers: Enrolling your business in CalSavers is free and generally simple to do — you just have to provide your access code, EIN or TIN, and upload your employee roster.
- Employees can start saving for retirement: CalSavers is an entry point to retirement savings for the 7.5 million private-sector workers in California who lack access to a workplace retirement plan.
CalSavers potential challenges: What employers and employees need to know
- It could be cumbersome to maintain: Your ongoing responsibilities as an employer include processing employee payroll contributions, keeping your accounts up to date, and adding or removing employees as necessary. Note: you may need to do this manually or pay for an integration with your payroll provider.1
- Retirement plans can be limited: CalSavers defaults to Roth IRAs, which historically have lower contribution limits compared to 401(k) plan, which can vary, and income restrictions. This may make it harder for employees to build up their savings. While there is a pre-tax contribution option, there are several hurdles to setting it up. Employees are defaulted into a Roth IRA and must manually recharacterize their contributions after each deposit by printing and mailing a multi-page form. This process must be repeated every year—it’s not a one-time election.
- There’s no employer match: Employers aren’t allowed to match employee earnings under CalSavers, which means your employees could miss out on potential savings — and you may miss out on a powerful way to attract and retain talent. As more and more businesses comply with the CalSavers mandate and offer different retirement plans, employer matching (via plans like most 401(k)s) could set businesses apart.
- Employees may face higher fees: Your employees would pay a fixed account fee of $174 a year, along with a total annualized fee of .30%2 plus the expense ratios for their investment options ranging from 0.038% to 0.19% of their account balance. This may be high compared to Guideline where active employees are only charged an annual account fee starting at 0.15% (0.0125%/month).3 plus the investment expense fees range from .04-.17%, Guidelines’s managed portfolio fees are 6x less than the industry average.4
| Guideline | CalSavers | |
|---|---|---|
| Retirement plan type | Starter 401(k) | Roth IRA |
| Tax benefit | Pre or Post tax | Post-tax only |
| Employee asset-based fee | 0.15%.3 | .30%2 |
| Additional active employee fees | None5 | $17/year account fee5 |
| Professionally managed portfolios | 6 | 0 |
| Investment options | 40 | 17 |
| Payroll integrations | 25+ platforms | Not disclosed |
| Exempt from IRS testing | Yes | Yes |
| Scales to a standard 401(k) | Yes | No |
| Monthly employer fee | $39/month + $4 per participant | Free |
Investment options may be limited based on your investment objective: CalSavers only offers employees 17 funds to invest their savings in. The program also doesn’t manage employee portfolios or offer a guided personalized investment experience.
Client of Guideline. Views may not be representative of other clients."Make sure you consider the cost of the administrative labor added to each payroll run. When you do, you realize state retirement programs aren’t really free."Rich HarveyCo-Owner of Pallas Care, a homecare company that saved roughly 20 hours a month by switching to Guideline.6
CalSavers alternatives — and why Guideline could be a great choice for your business
Giving your employees access to a retirement plan may be a responsible, smart business decision. After all, 93% of workers say retirement benefits influence whether they’ll take a job. With that in mind, you may want to consider all of your options.
Here are three alternatives to the CalSavers state program:
401(k)
A 401(k) is an employer-sponsored retirement plan that can offer greater flexibility, more tax benefits, and may be a better value for employees. In fact, 70% of employees prefer a 401(k) over a state-run IRA.7 Guideline’s 401(k) can be a great CalSavers alternative. It’s a low-cost, scalable plan for small businesses that need flexibility.
Not only can your employees make pre-tax and Roth contributions with most of Guideline’s plans, but you can match their contributions and customize enrollment based on which one you choose. Plus, Guideline’s plans come with twice as many funds and portfolio management services, so your employees have more investment options and a guided investment experience. Guideline also integrates with more than 25 payroll providers, automating tedious administrative tasks and saving you stress.
There are a couple of drawbacks to 401(k), though:
- A 401(k) is not free for the employer — but you get what you pay for. 81% of customers say Guideline fees are a low price to pay for the level of service and and ease of use it provides.8
- There are penalties if a participant withdraws money before age 59 ½. However, unlike IRAs, many 401(k) providers (like Guideline) allow participants to take out loans against their 401(k) if they experience a hardship.
Pro tip: SECURE 2.0 Tax Credits could cover 100% of the cost of a 401(k) for three years. Check out this tax calculator to see how you can leverage tax credits to offset the cost of a 401(k).7
SIMPLE IRA
A Savings Incentive Match Plan for Employees, or SIMPLE IRA, is a retirement plan geared toward businesses with fewer than 100 employees. Both employees and employers can make pre- and post-tax contributions. SIMPLE IRAs are straightforward to set up and manage, but don’t offer as much flexibility as 401(k) plans.
SEP IRA
A Simplified Employee Pension Individual Retirement Account, or SEP IRA, is a retirement plan that’s especially popular among self-employed people. SEP IRAs allow for both pre- and post-tax contributions. While you can add employees to your SEP IRA plan, only employers can make contributions.
Final thoughts: Is the CalSavers Roth IRA worth it?
The CalSavers Roth IRA can be a helpful compliance option for businesses that need a basic retirement plan in order to meet the mandate. However, if you want a program that can help you attract talent, that can grow with your business, and may be easy to maintain, 401(k) like Guideline could be a smart, strategic solution for your business so you can meet California compliance requirements without possibly sacrificing time or peace of mind.9
With a Guideline 401(k), not only do you cover your compliance bases, you can give your employees more investment options — and can help set your business up for financial success.
Thinking about an alternative to CalSavers? Try Guideline’s 401(k) built for small businesses.
Give your employees a roadmap to retirement
With Guideline, you can provide an impactful work benefit while minimizing paper work and fees