If you employ 100 people or more (yes, even part-time and seasonal), California’s got a new law in effect on September 30, 2020. And if you’re not enrolled or have a substitute, the fines are steep: $250 per employee for the first notice, $500 per employee for the second. That’s a $25,000- $50,000 penalty.

Companies that have 50 employees have their deadline next year, and anyone with 5 or more is due in 2022. The first deadline was originally today: June 30, 2020. However, the CoronaVirus Pandemic pushed back that deadline to September 30th. Although the unemployment rate is over 20%, and many businesses are fighting for air, the deadline and law remains.

Where Did CalSavers Come From?

In 2016, California passed Senate Bill 1234 effective July of 2019. After failed opposition and name changes, the program is called CalSavers. It's a mandatory retirement plan offering by every California employer, designed to offer virtually everybody a chance to save for retirement directly from their paycheck. Offering the program is required for companies that employ 5 or more people (including part-time employees).

As mentioned above- Businesses are subject to steep penalties for non-compliance.

There is no opting out for businesses unless they offer their own retirement plan (i.e. 401(k), Simple IRA, SEP IRA, etc.). Below are some quick facts about the coming program:

When does this go into effect? 

What’s the cost of non-compliance? 

“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, shall pay a penalty of $250 per eligible employee if noncompliance extends 90 days or more after the notice, and if found to be in non-compliance 180 days or more after the notice, an additional penalty of $500 per eligible employee.”

Who is required to participate? Business owners with 5 or more employees, who don’t have an existing retirement plan. Business owners are on their own to establish the plans and ensure compliance.

How does it work?  Essentially, the accounts are Payroll-deduction Roth IRA’s. Employers will be responsible for automatically enrolling all employees, withholding 5% of their pay, and contributing to their CalSavers account. Employees will be able to save up to the current Roth IRA contribution limit (for 2019, it is $6,000 per person under the age of 50).

Who pays for it? Employees, through investment fees (estimated to be between 0.80% and 1% initially)

How do you get out of it? Set up a 401(k), SEP IRA, Simple IRA, or another retirement plan type, then file an exemption showing your alternative to the state's program. For comparison purposes:

If you’d like to discuss the CalSavers Program or any of your alternatives, give our office a call. We’ll be happy to help you understand your choices over a complimentary meeting.