Beginning July 1, 2019, the CalSavers Retirement Savings Program will open to all eligible employers. The program, enacted under California Government Code Sections 100000 – 100050, has been in a pilot phase since November 2018, and will become mandatory for small business employers.
CalSavers provides employees access to a voluntary workplace retirement savings program without the administrative complexity, fees, or fiduciary liability of existing options traditionally placed with employers. It enables participation through automatic employee payroll contributions with escalation up to 8% into a personal retirement account operated by the private sector financial firm Ascensus and overseen by the public California Secure Choice Retirement Savings Investment Board chaired by the California State Treasurer. The plan will be portable; that is, when an employee changes employment throughout his or her working life, he or she does not have to make a plan withdrawal or roll the savings over to a new plan. Under the pilot program, investments are made in Roth IRA accounts; after July 1, 2019, participating employees will have a choice between a traditional IRA (contributing pre-tax amounts) and a Roth IRA (contributing after-tax amounts), and will have flexibility to choose savings rates and investments ranging from money market and bond funds to a target retirement date fund, a global equity fund, and an environmentally and socially conscious fund.
Obligations of Employers
CalSavers is intended to have employers facilitate their employees’ access to an automatic IRA account with limited administrative duties, no out of pocket costs, and no fiduciary liability; employers will be exempt from ERISA (Employee Retirement Income Security Act) responsibility.
As of July 1, 2019, any employer with at least five employees that doesn’t already offer a workplace retirement savings vehicle will be required to either (i) begin offering one via the private market or (ii) provide their employees access to CalSavers. After CalSavers opens for enrollment, employers subject to the mandate can register for CalSavers at any time and will be required to comply by the following deadlines:
|Size of business||Deadline for Compliance|
|100< employees||June 30, 2020|
|50< employees||June 30, 2021|
|5+ employees||June 30, 2022|
If a business has fewer than five employees (or already offers its employees a retirement plan) the CalSavers mandate does not apply.
Each small business subject to the mandate must register for the program between July 1, 2019 and the above dates. Registration will be online (www.employer.calsavers.com) and will be completed when the company provides company information and the names of its employees. Employers will not contribute to funds, manage funds, or have any responsibility for financial advice to their employees. Participating employee contributions will be submitted via payroll deduction; much like medical program premiums or employee unemployment insurance contributions.
CalSavers will be operated solely through administrative fees levied upon the participant investment funds. As such, neither employers nor taxpayers will bear the cost of the program.
Why is the State of California mandating a retirement plan?
Half of households 55 and older have no retirement savings, per the General Accounting Office. Fifty-seven percent of current retirees are women and make up seventy percent of retirees in the bottom 25% of income (UC Berkeley Center for Labor Research and Education). Without a retirement fund, some 62% of retirees rely on Social Security for more than half their income, and the average monthly Social Security retirement benefit is $1,328. Finally, 7.5 million Californians work for employers that do not offer a retirement program. Of those, two-thirds work for small businesses that employ less than 100 workers; many of these cannot afford the overhead and administrative cost of sponsoring a retirement program. Against this background, facilitating a voluntary self-funded retirement arrangement at no cost to taxpayers or employers encourages employee retirement savings, benefits employers in the state, and potentially results in workforce participants who are less reliant on taxpayer-funded public services when they reach retirement age.