CalSavers Program: What California Businesses Should Know

April 13, 2022

At a glance

  • The main takeaway: The CalSavers deadline for California businesses with more than five employees is approaching on June 30.
  • Impact on your business: If your business fails to enroll in CalSavers or implement a qualified retirement plan by the deadline, you could face up to $750 in fines per employee.
  • Next steps: If you need help assessing and addressing your retirement plan needs, consider partnering with Aprio Retirement Plan Services.

Schedule a consultation with Aprio.

The full story:

A big retirement plan deadline is approaching for some California businesses.

By June 30, all California businesses that have more than five employees will be fined if they do not provide a qualified retirement plan or register with the state option known as CalSavers (previously called Secure Choice).

California joins 46 other states that have discussed or implemented legislation that ensures employees have access to state-led retirement savings programs. Below, we provide a summary of CalSavers and key items businesses should consider.

Who is required to participate?

California state law requires employers to either offer their own retirement plan or register to facilitate CalSavers. Your business is required to register for CalSavers if you have at least five California-based employees, at least one of whom is age eighteen, and don’t sponsor a qualified retirement plan currently. 

Qualified retirement plans include:

  • 401(a) – Qualified plan that includes a profit-sharing plan and defined benefit plan
  • 401(k) – Plan that includes a multiple employer plan or pooled employer plan
  • 403(a) – Qualified annuity plan or a 403(b) tax-sheltered annuity plan
  • 408(k) – Simplified Employee Pension (SEP) plan
  • 408(p) – Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA
  • Payroll deduction IRAs with automatic enrollment

When does the CalSavers program take effect?

As mentioned above, the CalSavers mandate goes into effect on June 30, 2022. Previously, employers with more than 50 employees were required to register for the CalSavers program by June 2021.

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 will pay a penalty of $250 per eligible employee. If noncompliance extends 90 days or more after the notice, and if your business is found to be noncompliant 180 days or more after the notice, you will face an additional penalty of $500 per eligible employee. That means you could face a total penalty of up to $750 per eligible employee.

The state is launching the CalSavers program over a three-year period, and businesses can register for it any time before the June 30 deadline.

Contribution limit breakdown

When deciding whether to implement a qualified retirement plan or enroll in the CalSavers program, it’s important to have a solid understanding of how much your employees may be able to contribute. Here is a quick side-by-side summary:

401(k) Retirement PlanCalSavers Retirement IRA
$20,500 (if under age 50)
$27,000 (if age 50+)
$6,000 (if under age 50)
$7,000 total (if age 50+)

There are a few key items to note. First, your business is not able to make matching contributions to the CalSavers Retirement IRA.

In addition, if you plan to implement a 401(k) plan instead of enrolling in the CalSavers program, your business may be able to leverage the retirement plan startup tax credit. This credit enables eligible employers to claim a federal tax credit of up to $5,000 for three years (a total of $15,000) for the standard and necessary costs related to starting a 401(k) plan (including plan setup and administration, employee education, etc.). The startup tax credit is limited to 50% of eligible startup costs. To take advantage of the credit, your business must have 100 or less employees that received at least $5,000 in compensation during the prior year and have at least one participant that is non-highly compensated.

Let Aprio lead the way

If you need help assessing and addressing your retirement plan needs, consider partnering with Aprio Retirement Plan Services. Our team is comprised of specialized advisors who focus solely on qualified retirement plans. We can help you navigate the options available to ensure you, your employees and your retirement plan are set up for success.

Schedule a consultation with us today.

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