CalSavers: What Small Business Owners & Employees Need to Know

Robert R. Fragnito | Chief Operating Officer

Did you know that California businesses will be required to offer their employees retirement plans? Many small business owners in California are not aware of the recent launch of the state’s retirement savings program.

What is CalSavers?

The CalSavers program is California’s voluntary retirement plan for private sector employees designed to help workers establish a retirement plan that is funded through payroll deductions with limited employer participation. As of July 2019, any California employer with five or more employees is required to establish a company sponsored retirement plan or must provide their employees with the opportunity to participate in the CalSavers program.

What this means for employees:

Employees who are over the age of 18, employed in the state of California, and have a social security number or individual tax identification number are eligible to establish a retirement account with CalSavers.

The benefits of the plan for employees:

The account is portable. You can take it with you anywhere you go even if leave your current employer and you have access to your account at any time.
Deductions are made automatically from your payroll.
You have your selection of investments.
You can opt-out of the program or opt-in at any time.

Employees should note:

Contributions to your CalSavers will be deposited to a Roth IRA meaning contributions are deposited on a post-tax basis.
The default savings rate is 5% of your earnings with an automatic increase feature of 1% per year not exceeding 8%. This feature can be changed or adjusted at any time.
Your first $1000 contribution will be placed in a money market fund and contributions after the $1,000 will be placed in a target date fund. Keep in mind you have the option to change your investment mix if you choose.
There are fees associated with this account. CalSavers estimates that fees on an annual asset-basis will cost between 0.825% to 0.95% depending on investment choices for plan participants.

What this means for Businesses:

Business owners in California with five or more employees have a limited role when it comes to CalSavers, but there are certain requirements that need to be fulfilled.

All eligible employers who do not have a retirement plan will need to register with CalSavers prior to the registration deadline. If you’re business has an existing retirement plan, you will have to inform the state that you qualify for an exemption. The state will phase-in businesses into the program within three years, the chart below features the three sizes and their respective deadlines.

CalSavers Registration Deadlines

100+ EMPLOYEES	50+ EMPLOYEES	5+ EMPLOYEES
June 30, 2020	June 30, 2021	June 30, 2022

Benefits for business owners:

You don’t have to make contributions to this plan.
There is no cost to the business to facilitate the option of CalSavers for your employees.
You are not a fiduciary of the retirement plan.
You are not responsible for the account management, investment guidance, or enrolling your employees in the plan.

Employers should consider:

Your business is responsible for submitting a roster of employees to CalSavers and on an ongoing basis adding or removing employees.
Your business submits contributions through payroll deductions.
There are no tax benefits to you as a business for facilitating CalSavers.
Retirement plans outside of CalSavers can be established and fulfill the state’s requirements.
Penalties for non-compliance range from $250 to $500 per eligible employee.

Retirement Plan Comparison for 2020

2020	CalSavers (Roth IRA)	Simple IRA	401(k)
Max Contribution	$6,000	$13,500	$19,500
Match Contribution	No	Yes, Required	Flexible
Tax Credits for Establishing New Plan by Business	No	Up to $500 per year for the first 3 years	Up to $500 per year for the first 3 years
Employer Tasks	Employer: Processes payroll contributions, updates contribution rates, adds or removes employees	Tasks typically handled by plan administrator	Task typically handled by plan administrator

Final Thoughts

The retirement crisis in the United States is very real and California along with other states are attempting to address this issue with their state-sponsored plans. As a business owner, this offers you another option when addressing whether you should have a retirement plan for you and your employees. As an employee this gives you the option to take advantage of saving for retirement today and having flexibility in how you save. The result is that employers need to be informed about the options available to them when deciding on how to provide or facilitate a retirement plan for their business.

DISCLAIMERS

The opinions expressed here reflect the judgement of the author(s) as of this date and are subject to change without notice. Information presented here is for informational purposes only and does not intend to make an offer, solicitation, or recommendation for the sale or purchase of any product, security, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. The information being provided is strictly as a courtesy.

MCF CAPITAL MANAGEMENT, LLC DOES NOT PROVIDE TAX ADVICE. PLEASE CONSULT WITH A TAX ADVISOR REGARDING YOUR SPECIFIC CIRCUMSTANCE.

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