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CALSAVERS: A NEW KIND OF RETIREMENT SAVINGS PLAN FOR CALIFORNIA
OH, AND IT’S MANDATORY
By the Firm’s Labor & Employment Group
To assist the 7 million-plus California employees whose employers have not established a retirement savings plan, the state has launched CalSavers, a mandatory statewide retirement savings program. Oregon and Illinois have already established similar plans. CalSavers is being phased in with a series of deadlines for enrollment based on company size with the final deadline, for companies with between 5 and 50 employees, June 30.
What is CalSavers?
In response to a lack of retirement savings, CalSavers ensures that nearly all working Californians can make easy, consistent payroll contributions. It offers limited simple investment options, including default settings designed to promote long-term savings. The program is intended to deliver progressively lower administrative fees over time, as economies of scale take effect.
Who Should Register for CalSavers?
Both nonprofit and for-profit employers are required to register for CalSavers if they have at least five California-based employees and don’t sponsor at least one of these qualified retirement plans:
- 401(a) – Qualified Plan (including profit-sharing plans and defined benefit plans)
- 401(k) plans (including multiple employer plans or pooled employer plans)
- 403(a) – Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan
- 408(k) – Simplified Employee Pension (SEP) plans
- 408(p) – Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan
- Payroll deduction IRAs with automatic enrollment
Employers offering one of these qualified plans will, however, still be required to register, but can indicate their exempt status and opt out of CalSavers.
Penalties for Not Registering for CalSavers
There are significant penalties for employer noncompliance – absent good cause, they’re penalized $250 per eligible employee for the first 90 days after receiving notice of their failure to comply. The penalty rises to $500 per eligible employee if they’re not in compliance 180 days after receiving notice.
Registering for CalSavers
CalSavers is designed to be simple, straightforward, and require as little administrative cost or involvement from employers as possible. Employers cannot contribute to employee accounts, provide investment guidance, or encourage or discourage participation in the program. Employers are also not charged any maintenance fees. They are also not responsible for providing information about the program, processing distributions, or administering employee accounts. State law also protects employers from liability for employee participation in the program, including investment decisions and results.
Employers are responsible for registering for CalSavers, and providing basic information for eligible employees, including name, date of birth, Social Security Number or ITIN, and contact information, and handling payroll deductions for contributions with each paycheck. They are also permitted to delegate employee facilitation to a payroll service.
Special regulations cover certain categories of multiparty employers. For employers who use temporary services or a leasing employer, the temporary services/leasing employer is the eligible employer. Employers who contract with a professional employer organization (PEO) are the eligible employer, not the PEO. And for a motion picture production company that uses a motion picture payroll services company, the production company is the eligible employer.
What Happens After Registration?
Once employee information is provided, CalSavers will contact employees directly to provide information on how the program works, opening an account, or opting out. However, it’s important to note that enrollment is the default outcome. If an employee does nothing within 30 days of being contacted by CalSavers, they are automatically enrolled with default saving settings. If they want to make changes or opt out, they must contact CalSavers.
CalSavers offers materials and sample emails for employers to inform employees about the program. This material is optional, but employers are not permitted to take a position on the program when discussing it with employees. In other words, an employer cannot attempt to convince employees not to sign up, hoping to save the company money.
Once an employee is registered in CalSavers, the employer is responsible for deducting and remitting their contributions each pay period. Employers are also responsible for adding new eligible employees to the program within 30 days of their date of hire or eligibility.
What are the Eligibility Requirements?
Eligibility requirements are minimal. Employees must be at least eighteen, with a bank account, and are eligible to participate from the first day they’re hired. There are no requirements for hours worked or tenure with their employer. For 2022, the contribution limit is $6,000 for employees under the age of 50. For employees over 50, it’s $7,000.
Who Is Responsible for Tracking the Amounts Contributed?
Employees are also responsible for tracking their own annual contribution limits across all the Individual Retirement Accounts (IRA) they maintain, including CalSavers account. CalSavers will notify employees when their account is close to reaching the federal annual contribution limits for an IRA and will tell employers to end contributions when the limit is reached. However, CalSavers can’t track additional retirement plans and won’t factor those into this calculation.
Many employers are reluctant to create a qualified retirement program for their employees and some employees are not comfortable saving through such a program because they need every dollar. Unfortunately, social security is not enough so CalSavers will help those employers who cannot afford their own program and employees who need to save for their own retirement because Uncle Sam may not pay enough to retire comfortably. It is thus important for all employers to comply with these new requirements.
The Labor and Employment Practice Group advises employers of all sizes on laws that impact their business and represents them in disputes arising from the employer/employee relationship. If you have any questions regarding this article, contact Greg Norys, head of the Labor and Employment Practice Group, at (559) 248-4820 or email@example.com.