In 2016, California Governor Brown signed Senate Bill 1234 which stipulated the state’s Secure Choice Retirement Savings Investment Board to begin to develop a workplace retirement savings program for private sector workers whose employers don’t offer a retirement plan. The program developed by the Board is called CalSavers.
Beginning this summer, workers at California companies with no employer-sponsored retirement plan will be able to contribute part of their paycheck to an individual retirement account (IRA) through this new program. It is worth noting that Oregon and Illinois already have similar programs set up and running and which have been working well, and 4 other states have the laws they need to start their own state-run retirement programs already in place.
CalSavers is a workplace retirement savings program that enables small business owners and employees to make an automatic contribution from their paychecks into a personal IRA retirement account. These accounts are overseen by the CalSavers Retirement Savings Investment Board and are entirely employee-funded.
The program is designed to have minimal administrative requirements for employers, and state law protects employers from any liability or fiduciary responsibilities. For example, there are no audit and plan setup fees to the employer, as there are with setting up a company-sponsored retirement plan. Employee participation is voluntary with an option to opt-out, meaning employees are automatically enrolled but can contact a third-party administrator if they do not want to participate.
Employers must factor in some investment of time on their part once they do register for the program, including setting up a CalSavers account and then managing the employee contributions to the account via payroll deduction. Account setup includes such tasks as creating a payroll list to enroll employees, and transmitting payroll to a third-party administrator determined by the board of directors. Account management duties require employers to submit contributions (which means having a detailed list of what each employee’s contribution rate is) and adding new employees when necessary. That’s it.
Employers with five or more employees will now be required to provide either a retirement plan for their workers or register for CalSavers and facilitate employees’ contributions to Individual Retirement Accounts.
The deadlines vary by the size of the business:
- Over 100 employees — June 30, 2020
- Over 50 employees —June 30, 2021
- 5 or more employees —June 30, 2022
What Else Should Small Businesses and Employees Know About the Program?
- Accounts are portable, meaning they stay with you from job to job throughout your entire career.
- The default contribution is 5% of your income, but participants can change their contribution amount. They can also set their contributions up to automatically increase by 1% annually up to 8%.
- The program is also open to the self-employed, which means solo entrepreneurs can also take advantage of the program.
In CalSavers, employees gain a portable plan that follows them from job to job and enables them to opt out and in at any point. If employees do not act within 30 days of notification once an employer registers for the program, they will be automatically enrolled at the default savings rate. Employees should know:
- Contributions will be made through payroll deduction
- The default savings rate is 5 percent of gross pay
- They have option to customize their plan and choose a different rate and change that rate at any time
- They can opt back in to the program at any time
What Does CalSavers Mean For Employers?
- Employers do not contribute funds, manage accounts or provide financial advice.
- Employers’ only requirement is to provide employee information to the program and facilitate a payroll contribution to the program each pay period.
While the smallest businesses don’t have to comply until 2022, they can opt-in sooner by joining the CalSavers pilot program. This gives small businesses a chance to try out the program early and provide feedback to the CalSavers Retirement Savings Program as it is being rolled out.
Employer need to be aware that there have been reports of predatory practices by retirement plan vendors. Poms & Associates have been made aware of at least one vendor, who used the language below when answering an employer’s inquiries:
“CalSavers is real... CalSavers isn’t very good. It would be better to set up a SEP-IRA or 401(k) of your own…If you don’t set up a plan for employees to save for their retirement, you will be subject to penalties. So you need to have a 401(k) or SEP-IRA or any other plan that allows employees to save for retirement before the deadline for your number of employees.”
The vendor appears to be trying to gain business through fear-mongering and questionable ethical practices. Employers should keep in mind that CalSavers is completely free to the employers and only requires minimal administrative duties.