Navigating CalSavers: What Small Business Owners Need to Know
CalSavers is a retirement savings program created by the state of California for private-sector workers who don’t have access to an employer-sponsored retirement plan.
The CalSavers program is an excellent option for small business owners who can’t afford the costs of a standard retirement plan or the administrative overhead. Participation in the program is relatively straightforward, as it doesn’t involve employer fees or fiduciary responsibilities. In addition, there is minimal administrative upkeep.
How Does CalSavers Work?
The program currently requires employers with at least five employees to offer a qualified retirement plan or register their employees for CalSavers. As of January 1, 2023, employers at least one eligible employee (with the exception of sole proprietorships and self-employed individuals) are required to join CalSavers by December 31, 2025, if they don’t already offer a retirement plan.
CalSavers automatically deducts 5% of an employee’s gross pay, which employees can adjust or opt out of completely. The program offers a Roth IRA with a contribution limit of $6,500 for 2023 (or $7,500 if the employee is 50 or older) and is portable across jobs; employees with high-income levels are subject to a lower contribution limit. Employees also have the option of recharacterizing their account to a traditional IRA.
What Responsibilities Do Employers Have with the CalSavers Program?
CalSavers is designed to limit the administrative responsibilities of employers. However, employers are required to offer the program to employees who have worked for them for 30 days or more and must comply with registration deadlines to avoid financial penalties. Employers are also responsible for:
• Entering information for eligible employees and completing the registration process
• Providing information about the program to all existing and new employees
• Manually enrolling participants and making automatic annual deferral adjustments
• Managing and monitoring payroll contributions
• Keeping track of and complying with opt-out requests
Are Employers Required to Use CalSavers?
Although CalSavers is a very affordable and convenient option for small business owners, participation is not required unless your business doesn’t offer employees a qualified retirement plan, such as:
• 401(k) plans (including multiple employer plans or pooled employer plans)
• 408(k) Simplified Employee Pension (SEP) plans
• 408(p) Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan
• Payroll deduction IRAs with automatic enrollment
There are many retirement plans and providers available; which one is best for your company depends on factors like the size of your business, the number of employees, and your financial goals. Payroll Boutique can help you determine the right retirement plan for your business. Get started today—call or text (707) 860-8510 or email us at hello@payrollboutique.com.
Please note that this article is for informational purposes only and is not intended as business or financial advice. As every client's situation is different, the views expressed in this blog may not apply to you; for specific advice regarding your business, please consult a qualified CPA.
