California requires every employer with five or more employees to offer a private-sector retirement plan to their employees or join a State-sponsored program called CalSavers.

Businesses with five or more employees must adopt such plans before June 30, 2022. California businesses with fifty or more employees were required to adopt a plan last year.

CalSavers Plan: Employees will be automatically enrolled unless they opt-out. If they choose to opt-out, they must renew their choice every year, or they will be automatically enrolled again. The automatic enrollment results in a 5% deduction taken from the employee’s gross pay being deposited into the plan. This amount increases by 1% per year until it reaches 8%. Employees are free to elect other percentages but will be subject to the automatic levels if they do not make
that election.

Structure: CalSavers is currently structured as a Roth IRA, which means there is no tax deduction for money withheld from the employee’s paycheck and deposited into the plan. The benefit comes in later years when the funds are withdrawn, presumably in retirement. At that time there is no tax due on either the initial contributions or the growth of those contributions.

Permitted Prerequisites to Participation: An employee can be required to have one year of service, defined as 1,000 hours or more worked, and be at least 21 years of age, before they can begin participating in a retirement plan. Under CalSavers, any employee paid by W-2, who is age 18 or older and has worked for 30 days from their date of hire, must be automatically enrolled in the plan unless they opt-out. Among other requirements, employers must regularly submit a full employee census to CalSavers and track eligible employees.

Enforcement: If a business is found to be non-compliant, a notice will be issued by the State. If the business remains non-compliant 90 days after the notice, the proposed penalty is $250 per eligible employee. If the business remains noncompliant for 180 days after the notice, the proposed penalty escalates to $500 per eligible employee.

We recommend that employers contact their business attorney and their employee benefits administrator to assure they comply and avoid enforcement penalties.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.