The California Secure Choice Retirement Savings Trust Act (“CalSavers”) is a vehicle by which employees who do not have access to an employer-sponsored retirement plan can contribute to their own CalSavers Roth Individual Retirement Account (IRA). CalSavers is available to all workers, including those whose employers do not offer a workplace retirement plan, self-employed individuals, and anyone who wants to save for retirement through CalSavers.
All employers with five or more employees are required to register and either enroll their employees or file an exemption by June 30, 2022.
- Employers that do not offer their own employer-sponsored retirement plan must register with the CalSavers program and enroll their employees.
- Employers that do offer their own employer-sponsored retirement plan must register with the CalSavers program and claim an exemption.
The website for registering is: https://www.calsavers.com/. There are no fees, the online system is relatively simple and painless, and the FAQ is detailed and informative.
For employers that do not offer a qualified plan, an additional filing must be completed within 30 days of registration, which includes an employee census with social security numbers. Within 30 days thereafter, those employees will be notified by CalSavers about the program.
Employees have the option of participating in CalSavers or opting out. Importantly, if the employee does not opt out, the employer must begin withholding and forwarding employee contributions 30 days after the employees were notified by CalSavers.
Employees who do not opt out will be automatically enrolled to defer 5% of their gross pay. The percentage increases annually by 1% up to a maximum of 8%. An account in which deferrals are held is currently treated as a Roth IRA. This means that these contributions are made on an after-tax basis, and are subject to the Roth IRA dollar limits and restrictions. CalSavers participants make their own investment decisions, choosing among a variety of investment funds, with the first $1,000 automatically invested in a money market account unless a participant chooses otherwise. The program then uses various “target date funds,” based on the participant’s age, as the default investment once the $1,000 threshold is met – again, unless the participant makes a different investment election.
Participants may opt out, change their deferral rate, or change investment options at any time. To do so, the employee must go onto the CalSavers website and affirmatively opt out or make the desired changes. Again, this process is simple. If the employee does nothing, the automatic default will be that the employee remains enrolled in CalSavers, and 5% of the employee’s gross pay will be deducted from each paycheck and transferred to the employee’s CalSavers Roth IRA account.
If you have not yet registered for CalSavers and enrolled your employees, or registered for CalSavers and filed your exemption, do so immediately. Penalties may be imposed on employers that fail to do so by the June 30, 2022 deadline.
