The State of California is mandating that all employers who do not have their own retirement plan, must participate in CalSavers, a state-run, Roth-IRA-like retirement savings program. This requirement is in place now for businesses with over 50 employees and will cover organizations with at least 5 employees starting June 30, 2022.
Information for employers and registration links are available online directly from CalSavers.The state law states that all non-governmental businesses, including not-for-profits that are not religious organizations, must participate in the CalSavers program. The program requires that after registering and enrolling their workers, businesses withhold money for retirement savings and send the funds to the state.
This potentially burdensome paperwork must be done by all organizations except for those that offer their own qualified retirement programs. Businesses with their own retirement plans are exempt from the registration and participation requirements.
Although the registration rules for larger businesses have been in place since 2019, there has been no enforcement. Be aware that the authorities plan to start issuing non-compliance notices in January 2022.
Thus, if a business has over 50 California employees, does not have its own retirement plan, and has not yet registered with CalSavers, it should act now! Failure to comply can result in a penalty of $500 per employee. Smaller employers with 5 or more workers have until June 2022 to register.
A 401(K) plan is an excellent alternative to the CalSavers program that complies with the law and provides a valuable benefit for employees.
A 401(k) plan eliminates the ongoing manual paperwork required by CalSavers, comes with a compliance guarantee, and is customizable. It also offers the following benefits:
- 401(k) plans annual savings are capped at $19,500 compared to CalSavers $6,000
- CalSavers does not give the option to match loyal employees, whereas a company match is allowable in a 401(k) plan
- 401(k) plans contributions are tax deductible for employees
Perhaps, the biggest downside of the CalSavers program is that the business owners are responsible for much of the plan administration: promptly informing the program of every new hire, keeping track of who opted out, recording those who customized their savings rates, updating payroll with every change, etc. Human error happens, and penalties and fines can be severe.
The manual process of CalSavers is outdated. To make matters worse, business owners and senior employees who earn more than $140,000 per year ($208,000 if married) may not contribute and the program offers no tax credit to the business owner – compared to those maximum $15,000 tax credit employers can receive with a 401(k) plan.
We invite you to talk to the professionals at RINA Wealth Management and your RINA Accountants & Advisors contact to explore how you can best participate – or opt out – of the CalSavers program.
Ignoring CalSavers is not an option. But optimizing your retirement savings program is in your control.