If your company does not offer its staff a 401(k) plan, you need to be aware of deadlines for registering your employees in the CalSavers Retirement Savings Program.
The program is designed to help California workers who do not have access to an employer-sponsored retirement plan start socking away money for their retirement. Employers with five or more workers are required to give their employees access to the CalSavers program, which was launched in 2019.
Deadlines for when employers have to adopt the program depend on their size:
- Businesses with more than 100 employees: Sept. 30, 2020
- Businesses with more than 50 employees: June 30, 2021
- Businesses with five or more employees: June 30, 2022
Employers that miss adoption deadlines or fail to allow employees to participate in the program, can face penalties of $250 per employee if they don’t comply within 90 days of receiving notice from the state. The penalty increases to $500 per employee if the employer fails to comply within 180 days of receiving notice.
If your business has more than 100 employees and missed the Sept. 30 deadline, you still have time to avoid penalties by signing up now.
How it works
The program enables eligible employees to automatically contribute a portion of their paycheck to a Roth individual retirement account (IRA).
Under the law, any California employer with five or more workers must give them access to CalSavers, unless they offer a 401(k) or similar employer-sponsored retirement plan. While it’s mandatory for employers to offer CalSavers to their employees, workers are not obligated to sign up.
Under the program, employers are not required to make contributions on behalf of their employees and will incur no fees. They will be required to submit employee contributions through automatic payroll deductions.
Here’s what your employees need to know about CalSavers:
- Accounts are portable and can be moved to another job.
- The funds are owned by the saver, regardless of whether they leave their job.
- Their IRA offers investment options, so the saver can choose where to park their money.
- Employees can choose how much they want to set aside of each paycheck, up to 8%.
- Employees can set aside a maximum of $6,000 a year into the account, or $7,000 if they are age 50 and over.
- Fees are less than $1 per $100 deposited (they range from 0.825% to 0.95%).
- Employees can opt out at any time.
Setting up your business’s account
When setting up the account you’ll need to:
- Create a payroll list to enroll employees.
- Assign a person in your human resources to manage the account and transfers.
- If you use a payroll service, you will need to give them access to your account to handle the transfers.
Once you’ve created your company account, you can set up auto-enrollment for all of your new employees. Once you add a new employee to your account, they will receive an e-mail 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.