What You Need To Know About CalSavers
It’s estimated that only about 40% of American workers who are employed at small businesses have a work-based retirement plan available to them. This situation means that most people who work at small businesses will do nothing to save for retirement outside of the required FICA taxes that will provide them with Social Security and Medicare benefits. Some studies have shown that people who have the option of saving through a work-based retirement plan are 15 times more likely to save for retirement than those who do not. This is where California has attempted to take the lead with the new CalSavers program.
What Is CalSavers?
Effectively, CalSavers is a new state-run program that requires small businesses in California to offer work-based retirement plans for their employees. It’s estimated that this program will provide a retirement savings vehicle for around seven million Californians. The plan will set up an automatic 5% deductions from the paychecks of employees of small businesses that will go into an IRA. The deductions will start at 5%, but they will not stay there. Each year, this contribution will automatically increase by 1% until it reaches 8% of the employee’s salary.
Business owners can contribute to a CalSavers IRA as long as they are employees of the business. Self-employed workers can also participate. The contributions for most employees will come from payroll deductions, but business owners and self-employed people will have to make the contributions from their bank accounts. Employees can opt-out of the program at any time, but retirement savings through CalSavers will automatically start after 30 days of employment unless an employee decides to opt-out.
What If I Don’t Comply?
If you don’t register in a timely manner, without good reason, you’ll receive a notice of your failure to comply; if 90 days pass after your receive this notice and you still haven’t taken action to register for the program, you’ll be required to pay a penalty fee of $250 per eligible employee. If you wait another 90 days before acting, totaling 180 days after receiving the notice, you’ll be subject to an additional $500 penalty per eligible employee for failing to comply with the mandate.
What Businesses Are Required to Participate?
Registration for the CalSavers program started on July 1, 2019. Small businesses will be required to register for the program starting on June 30, 2020. Employers with at least 100 employees will have to register by that date. Employers will at least 50 employees will have another year before they are required to register, and those who employ at least five people will have to register by June 30, 2022. Employers do not have to wait until the deadline and can register at any time before the required date.
There is no need for an employer to handle the ordinary operation of the CalSavers plan, but they will need to register for an account and then submit any contributions from employees who choose to contribute. Small business owners who decide to offer a 401(k) or similar retirement plan for their workers will not have to register with CalSavers.
While the law requires that small businesses register, there is a question regarding the constitutionality of the CalSavers program. The Trump administration has backed a challenge to the plan under the Employee Retirement Income Security Act. If you’re a small business owner in the Monterey Peninsula and South Bay area and you’re looking to avoid being forced into the new CalSavers program, be sure to check with the professionals at Quintes to learn about the available to you.
Request More Information
If you’re a small business owner who operates in the Monterey Peninsula and South Bay area, the professionals at Quintes can assist you with any questions you have related to the CalSavers program. Fill out the form below to request more information about CalSavers and how it relates to your business.