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Solo & Small Firm

In the Know: CalSavers: Retirement Plan Option for Small Firms

In 2012, the California Legislature passed the California Secure Choice Retirement Savings Trust Act, which created the “CalSavers Retirement Savings Program” (Cal. Govt. Code §§ 100,000 – 100,050; Cal. Code Regs. tit. 10, §§ 10000 – 10007).  CalSavers is a government run retirement savings plan for employees of employers with 5 or more employees. 

The law implementing CalSavers includes an employer mandate as well:  the law requires that employers with 5 or more employees must either offer their employees a tax-qualified retirement plan or register with CalSavers.  Implementation deadlines are staggered:

Size of BusinessDeadline
Over 100 employeesJune 30, 2020
Over 50 employeesJune 30, 2021
5 or more employeesJune 30, 2022

Employer size is based on the average number of employees reported to the Employment Development Department (EDD) for the quarter ending December 31 and the previous 3 quarters of available data from the reports.  Cal. Code Regs. tit. 10, §§ 10001(a).  Using this methodology, both full-time and part-time employees will be counted. 

If an employer offers its employees a “tax-qualified retirement plan,” it is not eligible to participate in CalSavers.  (Government employers are also exempt.)  “Tax-qualified retirement plan” means a retirement plan that qualifies for favorable federal income tax treatment under Internal Revenue Code sections 401(a), 401(k), 403(a), 403(b), 408(k), or 408(p).  An employer-provided payroll deduction IRA program that does not provide for automatic enrollment is not a tax-qualified retirement plan.

If an employer does not want to set up a retirement plan, the employer can register with CalSavers, provide CalSavers with a census of employees, and agree to transmit employees’ payroll contributions.  Employee contributions will be deposited in a Roth IRA.  There are no employer contributions, and the employer does not pay any administrative fees.  The default employee contribution rate is 5% of pay.  Employees can opt-out of CalSavers, or they can adjust the contribution rate.  A sole proprietor or partner in a partnership that qualifies as an “eligible employer” may also participate if treated as a sole proprietor or partner for federal tax purposes.  See Cal. Code Regs. tit. 10, §§ 10000(k). The accounts belong to employees, so if they leave their job, they keep the account.   

Employers do not have to wait until the applicable compliance deadline to sign up.  CalSavers will be open to employers beginning July 1, 2019

The program is being challenged in court on the ground that it is preempted by the Employee Retirement Income Security Act of 1974 (ERISA) (Howard Jarvis Taxpayers Ass’n v. The California Secure Choice Retirement Savings Program, No. 2:18-cv-01584-MCE-KJN (E.D. Cal.).  On March 28th, the trial court entered an order granting the defendants’ motion to dismiss.  The court also, however, granted the plaintiffs “one final opportunity to amend” their complaint.

If you want to help your employees save for the future, CalSavers might be an option for your firm.  More information is available at www.calsavers.com and www.treasurer.ca.gov/scib/.   The EDD will be producing an employee information packet and opt-out forms.  

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