“The CalSavers program has been in the news. What is it?”

ERISA consultants at the Retirement Learning Center (RLC) Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs, qualified retirement plans and other types of retirement savings and income plans, including nonqualified plans, stock options, and Social Security and Medicare. We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with a financial advisor from California is representative of a common inquiry related to types of retirement plans.

Highlights of the Discussion

The CalSavers Retirement Savings Program (CalSavers) is a mandatory retirement savings program run by the state of California for private sector workers of California. California state law requires employers to either offer their own retirement plan[1] or register to facilitate CalSavers. On threat of penalty,[2] the employer is required to register with the state for CalSavers if the business

• Has at least five California-based employees, at least one of whom is age 18, and
• Does not sponsor a qualified retirement plan.

July 1, 2019, marked the opening for registration. There are staggered compliance deadlines depending on the size of employer. For eligible employers with

• More than 100 employees, the deadline to participate is June 30, 2020;
• More than 50 employees, the deadline to participate is June 30, 2021; and
• With five or more employees, the deadline to participate is June 30, 2022.

Employer Involvement

An eligible employer is responsible for registering for the program, providing basic employee roster information to the state for eligible employees (i.e., name, date of birth, Social Security Number or ITIN, and contact information), and facilitating by payroll deduction the appropriate contributions each pay cycle.

Employee Involvement

Covered employees are automatically enrolled in CalSavers, and the state will contact employees directly to make them aware of the program and inform them of their ability to opt-out or customize their contributions. The default contribution is five percent of an employee’s gross salary, with an automatic one percent increase each year up to a maximum of eight percent. Currently, the CalSavers Program uses after-tax Roth IRAs, but is working on adding a Traditional IRA choice in late 2019 or early 2020. For 2019, the contribution limit is $6,000 for those under age 50 and $7,000 for those ages 50 and over. Note that this limit applies to all of an individual’s IRAs in aggregate—including a CalSavers account. Standard Roth IRA distribution rules apply. Unless an employee selects another investment option, the first $1,000 in contributions will be invested in the CalSavers Money Market Fund and subsequent contributions will be invested in a target retirement date fund based on the individual’s age. Employees can decide at any time whether to keep their investments in these funds or choose from a menu of other investment options. That’s just the top of the waves. The CalSavers website contains a wealth of information for employers and savers.

Conclusion

Registration is now officially open for the California-run CalSavers Retirement Savings Program—a automatic Roth IRA program for California workers who do not have access to a workplace retirement plan.

[1] Qualified retirement plans include pension plans; 401(k) plans; 403(a) plans; 403(b) plans; Simplified Employee Pension (SEP) plans; Savings Incentive Match Plan for Employees (SIMPLE) plans; or Payroll deduction IRAs with automatic enrollment.

[2] A penalty of $250 per eligible employee applies if noncompliance extends 90 days or more after notice, and if found to be in noncompliance 180 days or more after notice, an additional penalty of $500 per eligible employee will apply.