What the CalSavers expansion means for you

At Guideline everything we do is rooted in providing a path to retirement and giving people the confidence to start planning for their financial futures. Over the past few years, several state mandated programs have been introduced in support of that same goal.

In 2020, California law passed the CalSavers Retirement Savings Program, or CalSavers for short. Now the program has been expanded and will impact even more businesses across the golden state.

Here’s what the new legislation could mean for you:

What is CalSavers?

CalSavers was created to encourage more people to save for retirement. When it was first introduced, it required employers with five or more California-based employees to provide access to a retirement plan. As an employer, you can choose the type of plan you’d like to offer: the state-sponsored plan or a private plan, like a Guideline 401(k).

What does the new CalSavers legislation mean?

California Governor Gavin Newsom recently signed legislation to expand the CalSavers mandate to businesses employing one to four California-based employees.

Under Senate Bill 1126, employers with at least one employee who is not also the owner of the business are required to provide access to CalSavers or a private retirement plan.

Mandated employers with fewer than five employees have until December 31, 2025, before they are required to register.

How many people will this new legislation impact?

The new legislation sponsored by California Treasurer, Fiona Ma, expands retirement access to an estimated three-quarters of a million workers in California.

“SB 1126 will ensure that nearly every working Californian has access to a workplace retirement savings program,” said Senator Dave Cortese (D-San Jose), author of SB 1126. “By assisting both employers and employees, this legislation will help millions of Californians save for their future so they can retire with security and peace of mind.”

To understand the impact of CalSavers on California’s workers thus far, the state has reported that more than 106,000 employers have joined CalSavers. More promisingly, an overwhelming majority of those have fewer than 50 employees, ensuring that employees of small businesses, not just large corporations, have a retirement they can look forward to.

What happens if an employer misses the registration deadline?

There are significant penalties for non-compliance. Employers that miss the mandated deadline of December 31, 2025 may face enforcement action which will include financial penalties.

Per Government Code Section 100033(b), 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, will pay a penalty of $250 per eligible employee if non-compliance extends 90 days or more after the notice. If found to be in non-compliance 180 days or more after the notice, an additional penalty of $500 per eligible employee. You can learn more about this here.

Do I have to make employer contributions under CalSavers?

Employers may not make contributions on behalf of their employees, such as matching contributions. If you wish to contribute to a retirement plan for your employees, you can explore offering an employer-sponsored retirement plan, such as a Guideline 401(k).

Are there alternatives to CalSavers to consider?

CalSavers may be a good place to start for businesses that cannot afford to extend employee benefits. Other options include offering employees a 401(k) plan designed for small businesses, such as Guideline. A 401(k) plan boasts substantially higher contribution limits and allows for matching and profit-sharing. As a result, 401(k) plans would allow business owners and employees to potentially save more for retirement.