Employers With Fewer Than Five Employees Must Register With Cal-Savers by December 31, 2025
The CalSavers Retirement Savings Trust Act was designed to ensure that all of California’s private employees have a simple, trusted way to save for retirement—regardless of their employer’s size. It allows employers to provide a plan of their own choosing or design—such as a 401(k), SEP IRA or SIMPLE IRA—so long as the plan is eligible for favorable tax treatment under federal law. Employers who do not provide such a plan are required to participate in the CalSavers Retirement Savings Program.
The CalSavers Retirement Savings Program offers advantages for employees and employers alike. For employees, the program provides a simple, low-cost Roth IRA that they keep even if they change jobs. The savings rate and other features are easily adjustable and can be changed at any time. The program is designed to make it as easy as possible for employers to facilitate saving for retirement: there are no employer fees or mandatory contributions and no fiduciary responsibility.
In the past, only employers with five or more employees were required to participate in the CalSavers Retirement Savings Program or offer a suitable alternative. But California Senate Bill 1126, passed in 2022, has changed that. Now, employers of all sizes are required to participate in the CalSavers Retirement Savings Program or register for an exemption with the CalSavers Retirement Savings Program. In either case, businesses with one to four employees are required to participate in, or register for an exemption with, the CalSavers Retirement Savings Program by December 31, 2025. The differences between the requirements for participation and registration are discussed in greater detail below.
Businesses who wish to participate in the CalSavers Retirement Savings Program begin by providing a complete employee roster including name, date of birth, Social Security Number or ITIN and contact information. Businesses must make sure to hold open enrollment meetings, track new employees and offer them the plan within 30 days of hire. Though they can choose their own savings rate if they would like, employees are automatically enrolled in the program at 5% of pay—unless they affirmatively opt out. For their part, businesses are required to deduct and remit within seven days, each participating employee’s contributions for each pay period. There is no requirement for the employer to contribute funds. In fact, employers may not make matching contributions. If an employer wishes to do so, they must provide a qualifying employer-sponsored retirement plan. In which case, they would have to register for an exemption with the CalSavers Retirement Savings Program.
Businesses who wish to register for an exemption with the CalSavers Retirement Savings Program begin by providing their Federal Employer Identification Number and California Tax Number. Then, under penalty of perjury, they must electronically attest that the business is a government, religious or tribal entity; or that the business’s only workers are the owners; or that the business provides a suitable alternative retirement saving plan.
It’s crucial to emphasize again that under California Senate Bill 1126, all employers—regardless of size—are required to either enroll in the CalSavers Retirement Savings Program or register for an exemption by December 31, 2025. Businesses that have not yet done so can begin the process here: https://employer.calsavers.com/home.html
Finally, California Senate Bill 1126 did not make changes to the existing penalties for noncompliance but they are still worth noting here: If noncompliance persists 90 days after an employer is served with notice, they are subject to a penalty of $250 per eligible employee. Employers who remain noncompliant for 180 days or more are subject to an additional penalty of $500 per eligible employee. Penalties for continued noncompliance are assessed annually.
As always, if you have any questions about the matters discussed in this issue of Compliance Matters, please call your firm contact at (818) 508-3700 or visit us online at www.brgslaw.com .
Sincerely,
George A. MacDonald