California Requires Employers To Register For CalSavers If Employers Do Not Offer Employer-Sponsored Retirement Plan
By Swerdlow Florence Sanchez Swerdlow & Wimmer
May 12, 2021
CalSavers – California’s state-run individual retirement account program for workers whose covered employers do not offer retirement savings plans – is not preempted by the federal law of employee benefits, the Ninth Circuit Court of Appeals ruled on May 6, 2021, in Howard Jarvis Taxpayers Assoc. v. California Secure Choice Retirement Savings Program. The court held that CalSavers is not a plan subject to the Employee Retirement Income Security Act (“ERISA”) because it is maintained by the state of California and does not require private, covered employers to establish their own retirement plans.
In 2016, the California legislature enacted the CalSavers program – a retirement program for employees in the private sector whose employers do not sponsor a retirement program for their workers. Mandatory enrollment in CalSavers is required for all employers with at least five California-based employees, at least one of whom is 18 years old, and who do not sponsor a qualified retirement plan. Qualified retirement plans include those that meet the requirements of Internal Revenue Code Sections 403(a), 408(k), 408(p), 401(a), 401(k), and payroll deduction IRAs with automatic enrollment. Note that participation in CalSavers is required for employers in the non-profit and for-profit sector; however, religious organizations are exempt under state law.
CalSavers allows for employees to voluntarily participate in the program, which is administered by a private-sector financial services firm and overseen by a public board that is chaired by the California State Treasurer. There are no employer fees or contributions under CalSavers, and employers are not fiduciaries of the program. Employees are able to save for retirement through payroll contributions, and they are able to keep their account even if they become employed elsewhere.
Once an employer registers for CalSavers, employees will be automatically enrolled in the program unless they opt-out. The standard savings rate for employees under the program is 5% of the employees’ gross pay, which is deducted from their paycheck on an after-tax basis. Employees have the option, however, to set their own contribution rate (from as little as 1% to the maximum available within IRS limits) and to select their investments from the ones available within CalSavers. Note that business owners who are also employees of their businesses are eligible to participate.
Responsibilities for employers required to participate in CalSavers include:
• Registering for the program;
• Providing basic employee roster information to the program for eligible employees (name, date of birth, social security number or Individual Taxpayer Identification Number (“ITIN”), and contact information); and
• Facilitating. by payroll deduction, the appropriate contributions for each pay cycle.
Employers must remain neutral about their employees’ participation in CalSavers. CalSavers will provide employees directly with all necessary information and will provide employers with an email template at the time of registration to share with employees to inform them that CalSavers will be contacting them.
It is important for California employers to understand that, if they do not offer their own sponsored retirement plan as discussed above, they are required to register for CalSavers by the following deadlines (although employers can request to register at any time prior to the deadline):
• Employers with more than 100 employees – the deadline to register for CalSavers was September 20, 2020.
• Employers with more than 50 employees – the deadline to register for CalSavers is June 30, 2021.
• Employers with 5 or more employees – the deadline to register for CalSavers is June 30, 2022.
Registration for CalSavers can be done at calsavers.com. This site also has useful information regarding the program.
Additionally, an employer that is exempt from CalSavers must notify CalSavers that it offers employees an employer-sponsored retirement plan. This certification can also be done on the CalSavers website.
Employers who do not comply with the requirements of the CalSavers program can be subject to fines by the California Tax Board. Thus, all employers should be mindful of the deadlines above and either register for CalSavers or file their exemption prior to the applicable deadline to avoid penalties.
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