What is CalSavers?
The Employment Development Department (EDD) has stated, CalSavers is a retirement savings program for private sector workers whose employers do not offer a retirement plan.
Gavin Newsom has said “CalSavers is leveling the playing field for millions of hardworking Californians who will save for their futures for the first time in their lives.”
While these statements seem to be sincere, they don’t properly explain what CalSavers is, or the impact CalSavers may have to a business owner.
- Starting in July 2022, all California businesses with 5 or more employees must offer their workers either a private retirement plan of the state-sponsored "CalSavers" plan.
- California businesses found to be noncompliant after the June deadline will face fines.
- Upon closer inspection, complying with CalSavers may be more difficult than the state has led business owners to believe and offers nothing to employees that they don’t already have access to.
- Businesses with 5 employees or more and those with 50 employees or more have the same deadline: June 30, 2022. Businesses with 100 employees or more had a previous deadline in 2020.
- There are other options for you and your employees.
What is CalSavers?
CalSavers is California's new retirement savings program. It mandates that any employer with 5 or more employees must offer either a private qualified retirement plan to their employees or participate in CalSavers, the state-run retirement plan.
When using CalSavers, employees receive an individual retirement account (IRA). Failing to offer employees any retirement option incurs a hefty fine. With this program, California hopes to offer retirement savings to the state's millions of private sector who currently have no employer-sponsored retirement plan.
What are the fines and penalties for not complying with CalSavers?
The legislation describes two rounds of penalties.
After being served notice of noncompliance, the employer has 90 days to resolve the issue. If they fail to do so, they must pay a $250 per eligible employee.
The employer then has another 90 days (180 in total) to comply. After 180 days of noncompliance, the employer must pay a second round of penalties—this time, $500 per eligible employee.
It's important to note that the deadline for CalSavers is approaching quickly: June 30, 2022.
How difficult is it to comply with CalSavers and the state retirement mandates?
That depends on the business and the mix of employees within the business.
California businesses that employ a greater number of part time, seasonal or lower wage jobs and may retain employees for shorter time frames will have a much higher burden complying with CalSavers compared to a business that employs higher wage long term “career'' type of positions.
For example, a business owner with a grocery market that employs 20 employees with an average turn over of 10 employees every year is most likely going to be spending a lot more of their time and energy maneuvering around CalSavers to register and unregister employees than an owner of a dental office that may have a few dental hygienists, an office manager or a receptionist with low turnover and higher wages. No doubt some businesses will carry a heavier load than others when complying with CalSavers.
Check out our FAQ video that breaks down the Calsavers mandate.
One size retirement plans like CalSavers may not fit all businesses.
There are multiple reasons why there are over a dozen (12) types of retirement plans a business owner can choose from to save for their long-term financial security. Each plan offers different savings and investment options.
CalSavers seems to miss this understanding. Within CalSavers the default option for business owners and their employees is a Roth IRA which is extremely limiting and not always the best option for you or your staff.
Shopping around can help narrow down your options. Research can help you find which retirement savings plan is the strongest choice for you, your employees, and your business.
CalSavers is there if you need it—but it might work best as a fallback plan in order to comply with the state retirement mandates. And, if you are going to comply you might as well get the biggest bang for your buck, right? Not to mention another tool for you to use to attract new talent.
There may be an easier, better way to comply with state retirement mandates.
At the end of the day, if you are a California business owner with 5+ employees your only choice is to comply with the state mandates or pay a fine. Obviously complying appears to be the best option, so if you are going to comply, why not comply in a way that gains you the greatest benefits with the least amount of effort?
As a business owner you will have to decide which is better for you. Spending your time and energy to register your payroll and employees with CalSavers and maintain that process yourself as turnover occurs. Or, you can outsource those tasks. Private plans offer a valuable benefit for yourself and employees: they manage the tasks related to your retirement plan for you while keeping you compliant with state mandates.
There are many such plans available to you. When shopping for plans, keep your business needs in mind. Some plans work best for big businesses. If you own a small business, it's most helpful to find a plan suited to your specific needs.
401(k) plans are a popular option that offer many advantages and could potentially outperform the CalSavers Roth IRA. Ready to explore?
Want to explore the advantages of offering your employees a 401(k) benefit instead of the state retirement plan?
Meet Our Contributors
Founder, Quiver Financial
Director of Retirement Services,
Director of Alternative Investments,
Advisory services offered through Quiver Financial Holdings, LLC.
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