In 2016, California enacted a state-sponsored retirement savings program called CalSavers to benefit private sector employees without employer-provided retirement plans. This year, the law requires that any business with five or more employees either provides a retirement plan or enrolls the business in CalSavers.
We will explain what your needs to know to make sure you remain compliant with all deadlines that apply to your business.
CalSavers is an alternative, state-run retirement plan that is meant to help employees of smaller businesses that don’t offer traditional retirement plans. CalSavers aims to encourage these employees to start thinking about saving for their retirement while simultaneously helping smaller businesses provide financial planning tools to their employees with as little difficulty as possible.
Your company will not become ERISA (Employee Retirement Income Security Act) plan fiduciaries by enrolling in the program. Employers must take care not to advise their employees on their investments however, or the law would then require them to become the plan fiduciary.
For employers, yes. The law requires that all employers with five or more employees and no retirement plan enroll in CalSavers. Once enrolled, employees will be given a 30-day period to make contribution elections or opt out of the program. Employees not making an election will be enrolled in the program with a 5% payroll deduction.
Once enrolled, employees can customize their enrollments in several ways. They can change personal information, contribution rates, beneficiaries, investment fund choices, make withdrawals, or set up additional personal contributions.
Employees can make changes to their plans or opt out entirely any time. Post-tax funds based on gross income are withheld from the employee paycheck and deposited into a Roth IRA that belongs to the employee. The first $1,000 contribution will go into the CalSavers Money Market Fund for 30 days and then be re-allocated with all subsequent contributions to their CalSavers retirement fund.
There are no fees for employers participating in the CalSavers program. Employer matching contributions are not allowed. If an employer wants to contribute to an employee retirement plan, they must do so via a traditional retirement plan.
The final deadline to enroll your company in CalSavers is approaching. If you have five or more employees, you must register for the program by June 30, 2022.
If you already provide your employees with a traditional retirement plan, this deadline does not apply to you. If a company fails to enroll in CalSavers within 90 days of the deadline, they will be fined $250 per W-2 employee.
If you are a business owner and need help getting your employees registered for the CalSavers program, we are here. Allen Wine Group offers advisory services to the wine and construction industries. Our team will help you make sure that your business satisfies the requirements of the law and that your employees can take full advantage of the CalSavers program. Contact us today to get started.