CALSAVERS RETIREMENT SAVINGS TRUST ACT – WHAT, WHO, WHY AND WHEN
June 30, 2022 was the final day for many businesses and non-profits of five or more California-based employees to register with CalSavers before fines are imposed for failure to comply with state law. Below is a brief description of the CalSavers program as well as an overview of some basic program details to ensure your organization remains in compliance.
(1) What is the CalSavers Retirement Savings Trust Act?
The CalSavers Retirement Savings Trust Act, authorizes implementation of the CalSavers Retirement Savings Program (CalSavers), a payroll deduction retirement savings program for private-sector workers who do not have access to an employer-sponsored retirement savings plan. Authorized in 2016 by Senate Bill 1234 and officially launched statewide on July 1, 2019, the program is intended to ameliorate the growing national problem of retirement insecurity by ensuring California employees a simple way to save for their retirement.
The phased rollout of CalSavers started in 2020 and includes staggered deadlines for registration based on business size. CalSavers now requires employers to register their business of five or more California employees with the state program by June 30, 2022. With that said, newly eligible businesses starting in 2022 have until December 31, 2022, to register. Following registration, employers have 30 days to provide employee census and account information to CalSavers. Thereafter, employers must maintain up-to-date employee census and account information and register new employees with the program within 30 days of their respective hire dates.
CalSavers will then contact enrolled employees and provide them with information on how the program works, how to set up their account, and how they may opt out of the program. Employees who do not choose to opt out are automatically enrolled in CalSavers, however, employees may later opt out or opt back into the program at any time. Following enrollment, 5% of an employee’s gross pay will automatically be deducted from the employee’s paycheck on an after-tax basis and invested in a CalSavers Target Retirement Fund based on the employee’s age. Employees may customize their individual CalSavers plans and adjust their contribution amount and investment options within IRS parameters.
CalSavers is a state-administered program, not an employer-sponsored program, meaning the employer is not liable for the administration, investment, or investment performance of the program (Cal. Gov’t Code § 100034). Additionally, there are no fees or costs for employers who enroll in CalSavers. If employees have any questions, or would like to make changes to their account, they should contact the CalSavers directly at www.calsavers.com, at 855-650-6918 or clientservices@calsavers.com.
(2) Who does it apply to?
The CalSavers Retirement Savings Trust Act applies to all employers, including non-profits, with five or more California-based employees, at least one of whom is 18 years of age, that do not sponsor a qualified retirement plan. With that said, religious organizations, tribal organizations and government entities are exempt from CalSavers.
An employer has five or more employees if the average number of employees reported on the employer’s previous four DE9/DE9C filings from the prior calendar year includes five or more employees.
All employees 18 years or older who are employed in California and have either a Social Security number or an Individual Taxpayer Identification Number are eligible for CalSavers as soon as they are hired. There are no minimum requirements based on hours worked or tenure with an employer to become eligible for CalSavers.
(3) Process to Comply or Apply for Exemption
Employers with businesses beginning before 2022 must either start a new, qualified retirement plan or register their business with CalSavers by June 30, 2022. Newly eligible businesses starting in 2022 have until December 31, 2022, to fulfill the same requirements.
Employers can register through the CalSavers website. Following registration, employers have 30 days to provide employee census and account information to CalSavers. Thereafter, employers must maintain up-to-date employee census and account information and register new employees with the program within 30 days of their respective hire dates.
Alternatively, employers offering a qualified alternative such a 401(k) can file for an exemption on the same site. If approved, the employer will not need to register with CalSavers.
Qualified retirement plans include:
• 401(a) Qualified Plan (including profit-sharing plans and defined benefit plans)
• 401(k) plans (including multiple employer plans or pooled employer plans)
• 403(a) – Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan
• 408(k) – Simplified Employee Pension (SEP) plans
• 408(p) – Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan
• Payroll deduction IRAs with automatic enrollment
(1) Consequences of Non-Compliance
Employers who fail to register with CalSavers or report a qualified retirement plan by the appliable deadline are subject to financial penalties. Specifically, all eligible employers that, without good cause, fail to register with CalSavers on or within 90 days of receiving service of notice of failure to comply will be fined $250 per eligible employee. This amount increases to an additional of $500 per eligible employee if noncompliance continues for 180 days or more after receipt of the notice (Cal. Gov’t Code § 100033(b)).