If you are a business owner in California or an employee without access to a workplace retirement plan, you may have heard of CalSavers. This program comprises part of the state’s effort to help more workers save for retirement, especially those who do not have a traditional 401(k) or pension plan through their employer.
Understanding how CalSavers works and what it means for both employers and employees becomes important as the program continues to expand across the state.
What Is CalSavers?
CalSavers is a state-mandated retirement savings program designed to provide California workers with a simple way to save for retirement. It is intended to serve employees whose employers do not offer a retirement plan. Through this program, employees are automatically enrolled in a Roth IRA and make contributions directly from their paychecks.
The goal of CalSavers is to close the retirement savings gap. Millions of Californians have little or nothing saved for retirement. By requiring employers to either offer their own retirement plan or enroll in CalSavers, the state hopes to make it easier for people to build financial security for their future.
Who Is Required to Participate?
Employers in California with five or more employees who do not sponsor a retirement plan are required by law to register with CalSavers and offer the program to their employees. These businesses must either enroll in CalSavers or adopt another qualifying retirement plan.
In 2022, California approved new legislation to expand the CalSavers program to include businesses with just one employee. Employers with 1 to 4 employees must register or file an exemption by December 31, 2025, and will begin receiving advance notices starting in February 2025.
Deadlines for compliance have already passed for larger businesses, and smaller employers have also been phased in. Failure to comply with the mandate may result in penalties.
How Does It Work for Employees?
For employees, CalSavers is automatic once the employer is registered. Here is what workers can expect:
- Employees are enrolled in a Roth IRA by default
- Contributions are made through payroll deductions
- The default contribution rate is 5 percent of gross pay, with automatic annual increases
- Employees can change their contribution rate or opt out at any time
- Investment options are limited but managed by professional fund providers
Since this is a Roth IRA, contributions are made with after-tax dollars, and qualified withdrawals in retirement are tax-free. Income limits do apply, so higher earners may not be eligible.
Benefits of CalSavers
- No cost to employers other than administrative time
- Provides a retirement savings vehicle to employees who may not have access to one otherwise
- Offers employees the ability to start saving early with minimal effort
- Helps build long-term financial habits
What Should Employers Know?
If you are a California business owner, it is important to understand your obligations under the CalSavers mandate. Even if you employ only a handful of workers, you must register unless you already offer a qualified plan. While the state does not charge employers to participate, failure to comply may result in financial penalties.
Some employers may choose to implement a private retirement plan instead of using CalSavers. This can offer more flexibility, higher contribution limits, and potentially greater tax advantages.
If you have questions about how CalSavers affects you or your business, schedule a consultation with us for retirement planning support. We can help you explore your options and make informed decisions about your financial future.