If you aren’t sure, the answer’s probably no, especially if you operate a business or have employees in California. Don’t worry though, we will catch you up.
What is CalSavers?
CalSavers is a mandatory retirement program in California. It was passed into law in 2016 and rolled out in a pilot program in 2018. The goal of the program was to help address the retirement crisis by giving more people access to retirement savings tools.
The program is mandatory for companies and was rolled out with tiered deadlines to comply based on company size. The last and final tier is June 30th for companies of 5 or more. To be compliant with the law, your company must register with CalSavers unless you already have a qualified retirement program in place.
The following retirement plans qualify your company to opt out of CalSavers:
- Qualified pension or profit sharing plans under 401(a)
- 401(k) plans
- 403(a) plans
- 403(b) plan
- Simplified Employee Pension (SEP) plans
- Savings Incentive Match Plan for Employees (SIMPLE) plans
- Payroll deduction IRAs with automatic enrollment.
Registering with CalSavers is mandatory for companies that don’t have retirement programs, but employees are allowed to opt out of it. However, workers will be automatically enrolled in the program if they do not take action to opt out.
Here are some additional CalSavers facts you should know:
- CalSavers is a Roth IRA that stays with employees no matter where they work.
- Employees will be automatically enrolled after 30 days unless they opt out
- Enrolled employees will have 5% of their gross pay deducted via payroll contribution.
- The contribution amount increases automatically by 1% a year up to a max of 8%.
- Workers can change their contribution rate or opt out at any time.
There are some important details you will need to understand to make sure you are complying with the law. This is important for companies headquartered in California, as well as companies that have workers within the state.
- You have to register AND upload your employee lists by the June 30th Both elements must happen to be considered compliant.
- If you have a 401(K), you still have to go to the official CalSavers website to exempt out. The state will not proactively know you’ve complied with the law otherwise.
- All eligible companies were sent a letter with an access code for registration. If you don’t have this, you can request a new one here. This may take weeks to receive, so it’s important to start the process if you can’t find your code.
- Failing to comply with the law comes with penalties ranging from $250 to $500 per employee based on several factors, including the number of days out of compliance.
CalSavers and Construction companies
CalSavers does not allow any employer contributions, including fringe benefits or employee matching. This takes away your most powerful tools for reducing taxes and maximizing fringe credits. Construction companies that do prevailing wage work, simply cannot afford to default into the mandatory state program.
For construction companies, a 401(k) bona fide trust can be the quickest and most beneficial route to take. This will allow you to contribute fringe benefits, maximizing the amount of credit you take in the process. Paying fringes via a trust can also let you dramatically reduce the taxes, workers’ compensation and general liability you pay on fringe benefits.
Our clients can sign up for our 401(K) program, allowing them to have an eligible retirement plan, stay compliant and keep control over the benefits they provide. If you have questions about CalSavers or setting up a retirement program for your organization, call (623) 580-4900 or email us at infobits@eBacon.com.
The material presented here is educational in nature and is not intended to be, nor should be relied upon, as legal or financial advice. Please consult with an attorney or financial professional for advice.