CalSavers is a mandatory retirement program in the state of California. This program was created by legislation in 2016 with the intent of helping workers save for retirement. It has tiered registration deadlines based on the number of employees a company has, with the first deadline rapidly approaching:
- Businesses with 100-plus employees – Sept. 30
- Businesses with 50-plus employees – June 30, 2021
- Businesses with five-plus employees – June 30, 2022
Participation in CalSavers is mandatory unless your company already has an eligible retirement plan in place before the deadline. If you do not, you are required to register with CalSavers. Your employees will be automatically enrolled unless they take action to opt out of the CalSavers program.
As a business, you must also be prepared to make the required payroll deductions for your employees. 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%.
If your company does not comply with CalSavers, you can face action, including 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, shall pay a penalty of $250 per eligible employee if noncompliance extends 90 days or more after the notice, and if found to be in noncompliance 180 days or more after the notice, an additional penalty of $500 per eligible employee (Source)
You can read more about registering your business, or start the CalSavers registration process here. You will need to have your California payroll tax number, your federal employer identification or tax identification information along with a CalSavers access code. This should have been sent to your business already, but if you don’t have it, you can request one during the registration process.
CalSavers isn’t the best option for construction companies
For some, CalSavers might seem like a quick and simple solution for providing employees access to a retirement plan. It’s definitely an easy path to take since employees’ default into it unless they opt out, and it requires little work on behalf of the business owner. In reality though, CalSavers not only offers the bare minimum in terms of retirement savings, it can be detrimental for your business.
CalSavers is a Roth IRA which only allows your employees to save up to $6,000 yearly, or $7,000 for those over 50. There is little control in terms of customizing the account, and fees are still assessed. This makes it a less than favorable retirement solution for employees. As a construction company, however, CalSavers can actually be detrimental.
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.
Alternatives to CalSavers
The stated goal of the program was to encourage people to save for retirement. Since providing retirement plans can be complicated, it also gave smaller companies with fewer resources a simple solution. In reality though, it has some serious drawbacks, especially for industries like construction.
Fortunately, you can comply with the law and opt out of the mandatary state program by setting up a qualifying retirement program before the deadline. This can save you the fines associated with non-compliance, but also protect your ability to leverage the retirement program for your company’s benefit.
Currently, qualified retirement plans include:
- 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.
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.
Some construction companies have explored trusts but decided against them because their workers rely on receiving their fringe benefits every payday, and traditional trusts don’t allow this. Our fringe trust, however, actually does allow your employees easy access to cash every week by direct deposit or a pay card. This ensures your employees have their fringe payment, but still gives you tremendous benefits as a business owner.
Our fringe trust can also be set up quickly, usually within a single pay cycle, so you can beat the CalSavers deadline and start saving money quickly.
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.