Understanding CalSavers
What is CalSavers (Secure Act)?

CalSavers, formerly known as Secure Choice, is California’s retirement savings plan established through the passing of Senate Bill 1234 in late 2016. It stipulates that employers must offer a retirement savings plan AND, if they fail to offer one of their own, then they must offer their employees CalSavers, the state-operated retirement savings plan (or else face fines). The plan has a strong focus on small businesses, directed toward employers with five or more employees.


How does CalSavers work?

CalSavers gives employers a way to set up an Individual Retirement Account, or IRA, for each eligible employee. While many retirement savings plans offer more flexibility, CalSavers mandates that plans use default features, unless otherwise specified:

Employee payroll deductions are automatic, but adjustable — even opt-outable. Employee deductions are automatically set to 5% of an employee’s gross pay. Employees can adjust their contributions setting to a higher or lower percentage of their pay. Employees can opt out of the program (though they have to re-opt out every two years). Employers must bear the burden of adjusting payroll contributions to the IRA plan in their payroll system, and there is no payroll integration to facilitate this in a streamlined way.

It’s a Roth IRA program. Employee deductions are placed into a Roth IRA. A Roth IRA comes with an annual contribution limit: in 2020, this is $6,000 if under age 50, or $7,000 if age 50 or older. High-earning employees are subject to a reduced contribution limit. 

Employee investment options. The default investment option for the first $1,000 payroll contributions to CalSavers is a money market fund, and the subsequent contributions will be deposited in a target-date fund consistent with your birth date. A few other investment options exist, as well.


Is CalSavers mandatory?


Enrolling in CalSavers is NOT mandatory. However, what is mandatory is that all employers in the state with at least five W-2 employees MUST offer a qualified retirement savings plan* to their employees. If employers fail to offer a plan, they will face fines.

*A qualified retirement plan includes a 401(a), 401(k), 403(a), 403(b), 408(k), 408(p), or 457(b).


What’s the deadline?


Registration deadlines depend on company size:

June 30, 2020 – employers with >100 employees

June 30, 2021 – employers with >50 employees

June 30, 2022 – employers with 5+ employees


What if an employer doesn’t comply?

Employers who don’t offer a plan by the deadline may face financial penalties: The CalSavers website indicates that, per Unemployment Code Section 1088.9(b), each eligible employer that, without good cause, fails to allow its eligible employees to participate in CalSavers, on or before 90 days after service of notice of its failure to comply, shall pay a penalty of $250 per eligible employee if noncompliance extends 90 days or more after the notice, and if found to be in noncompliance 180 days or more after the notice, an additional penalty of $500 per eligible employee.


Can I offer a plan other than CalSavers?

CalSavers isn’t your only choice for a retirement savings plan. There are many retirement plans such as IRAs, 401(k)s, defined benefit pensions, and more. Only a few are custom-built for the needs of small-to-medium businesses. So, how do you choose one?


Should I offer a retirement plan other than CalSavers?

Start by identifying what is most important to you and your employees. It might be…

   - The total amount that you and employees can save each year, as well as whether those contributions will come with any tax benefits.

   - The time and manual effort that it takes to set up and administer the plan day-to-day. Note that some providers offer integration with payroll providers to automate employee contributions.

   - The cost to you, or to your employees, and how those compare to the rest of the industry.

   - The level of support you and your employees will have, including help with setup and day-to-day administration or compliance; ongoing support by phone or email; or help with choosing investments.

In summary, compared to CalSavers, a typical 401(k):

   - can let you save more money each year ($19,500 in a 401(k) vs. $6,000 in an IRA)

   - offers contributions that could reduce your taxable income (since contributions are made pre-tax instead of Roth)

   - has no eligibility restrictions in terms of household income and

   - may incur tax benefits for both employees and employers

What is the fee to offer CalSavers?

There is no fee for employers to enroll in CalSavers. Investment fees for employees range from 0.825–0.95% per year.

Money Intelligence charges $1,250 per year for its 401(k) plans and investment expenses are 0.29% per year inclusive of all asset and mutual fund fees. This can be a total savings of approximately 0.70% per year, or $700 for every $100,000 employees have invested in their retirement plans.

Money Intelligence’s 401(k) plans are also fully integrated to your payroll system, saving administrative hassle and burden.
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