“I keep hearing about a state retirement plan but don’t know if I want to use that or start a 401(k) for my employees. Am I being forced to do something?”
Your HR Survival Tip
California’s state plan for retirement savings is called CalSavers. If you have five or more employees (counting owners), you are required to register with the state by 6/30/2022 to either let them know you already have a retirement plan or are signing up for CalSavers. The CalSavers rollout started two years ago for larger companies. This is the final deadline and affects companies with 5-50 employees.
CalSavers is intended to be simple for both the employer and employee. Once you’ve uploaded your employee list onto the CalSavers website and set up your payroll for the deductions, you have minimal work to do to maintain it and there are no fees charged to the company. The website (CalSavers.com) is extremely helpful and includes live or recorded video training and a lot of other details to make the plan and process very easy to understand.
Employees are added as they are hired and they must complete an opt-out form if they don’t want to participate. The plan starts with a 5% after-tax contribution of your employee’s gross wages and increases it by 1% each year until it reaches 8% but the employee can choose to do something else. The plan actually creates an individual IRA for each participant so it is portable if an employee leaves your company.
If you have or will be implementing a 401(k) or similar plan before 6/30/2022, you don’t have to do anything but register that information on the CalSavers website. The most notable difference between CalSavers and 401(k) plans is the ability of a 401(k) to offer contribution matches and deduct contributions on a pre-tax basis.
While CalSavers is required for companies of 5 or more employees, smaller companies should inform their employees about the opportunity it presents. Individual employees can sign up on their own to start saving. The expectation by California is young employees earning lower wages will have saved at least 50% more toward their retirement than without this plan. It’s a good thought.
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