The CalSavers plan will eventually require that most businesses adopt a 401k or other qualified retirement plan by June of 2022. The state-run plan is very limited as far as options for employers are concerned. It's a good time to begin thinking about the option to engage in your own plan, and take advantage of the tax credits available.

Many California businesses are receiving an information packet from Cal Savers Retirement Savings Program. The CalSavers program was launched on July 1, 2019, and is designed to help employees in California save for retirement. All businesses in California will need to eventually adopt the Cal Savers program, but the deadline to enroll is progressive, affecting larger companies first, and businesses with more than 5 employees by 2022.

The CalSavers program allows eligible employees and business owners, to contribute annually up to $6000 to a *Roth IRA. Individuals over 50 can contribute an additional $1000 annually. If you have employees with incomes that surpass the Roth IRA income limits, they may need to opt out of CalSavers. Employees working for eligible businesses are automatically enrolled in the plan but may opt out.

The default contribution rate is five percent, but your employees are welcome to change that. Left unchanged, it will increase by one percent each year until they reach the maximum contribution level of eight percent.

All employers with five or more employees will need or enroll in CalSavers or set up a private retirement plan by the following deadlines:

• More than 100 employees: June 30, 2020 (This deadline has already passed)
• More than 50 employees: June 30, 2021
• 5 or more employees: June 30, 2022

If you’ve received a notice from Cal Savers and do not meet these deadline thresholds, you do not need to enroll now, but any business may choose to.

How much does CalSavers cost?

The plan costs nothing for the employer but there are built-in fees for the employees which are charged as a percentage against their investments, between 0.825 and 0.95%. These are comparable to 401k plan fees.

What’s the difference between CalSavers and a private 401(k) plan?

The Cal Savers plan does not require or allow the employer to participate or match any amounts the employees defer. It also does not offer any tax savings as a 401k plan would. 401k plans are typically more flexible with options for a deferral match, profit sharing, and other benefits that are far more advantageous to a small business employer.

Additionally, adopting your own plan comes with potential tax credits for most businesses. Eligible employers may be able to claim a tax credit of up to $5,000, for three years, for the ordinary and necessary costs of starting a SEP, SIMPLE IRA, or 401(k) plan. A tax credit reduces the amount of taxes you may owe on a dollar-for-dollar basis.

What are my requirements as an employer?

If you already offer a retirement plan, you don’t need to sign up for CalSavers. But you do need to certify your exemption, which can be done online through the CalSavers website.

If you’ve elected to use this public program instead of a private market option, you’ll need to register your business on the CalSavers website.

If you’d like to contribute to your employees’ retirement savings through an employer match, CalSavers may not be the best fit for you. The program doesn’t offer any way for you to match your team’s contributions.

Infinium offers an affordable and integrated solution through Ubiquity Retirement Plans, Check our 401k Retirement Page.

If you have any questions about this new employer requirement for California, please don’t hesitate to reach out to Infinium HR at info@infiniumhr.com.

*Roth IRA contributions are made on an after-tax basis. However, keep in mind that your eligibility to contribute to a Roth IRA is based on your income level. If you file taxes as a single person, your Modified Adjusted Gross Income (MAGI) must be under $137, 000 for the tax year 2019 and under $139,000 for the tax year 2020 to contribute to a Roth IRA, and if you’re married and file jointly, your MAGI must be under $203,000 for the tax year 2019 and 206,000 for the tax year 2020.