California’s Mandatory Retirement Plan Impacts More Employers in 2022

By Abe Livchitz, CPA, Senior Tax Manager 

August 26, 2022 Update to Expand CalSavers to More Workers

Governor Newsom signed an amendment, S 1126, requiring all employers within the state of California with at least one worker to participate in the CalSavers program (reducing the minimum from five workers). The amendment is expected to take effect prior to December 31, 2025, and continues to apply to employers that do not otherwise offer a retirement plan to their employees.


May 9, 2022 Update

Action Is Required

The state-run CalSavers program was enacted in 2016 to provide employees an opportunity to build retirement savings and let employers avoid administrative fees and fiduciary responsibilities.  An email outreach program launched towards the end of 2020, so many businesses have already received a notification to register for the CalSavers retirement plan program.  In 2021, this requirement only applied to California employers with more than 50 employees, but effective in 2022, employers with more than 5 employees will be required to register.

The program is being phased-in over a three-year period, and employers who meet the following criteria must register and participate as follows:

  • More than 100 employees were required to register by September 30, 2020;
  • More than 50 employees were required to register by June 30, 2021; and
  • More than 5 employees must register by June 30, 2022.

If you currently offer a retirement plan to your employees, you must still certify an exemption for your business through the CalSavers website before your required registration date.  Note that participation in a union multiemployer plan would qualify for an exemption.  Generally, the CalSavers registration and participation rules apply to all employers, including non-profit entities.

If you do not offer a plan for your employees, you must enroll each of your employees in a CalSavers account, unless the employees opt out.  CalSavers accounts are simply Roth IRA accounts and are subject to contribution and participant income limits applicable to all Roth IRA accounts. However, CalSavers does offer participants an option to have a traditional IRA account.

Once registered, an employer must provide CalSavers enrollment notification packets to employees who are age 18 or older during an annual enrollment period.  The law does not provide any exceptions for short-term or part-time employees, so all employees age 18 or older must begin funding the plan, or opt-out, by their first paycheck issued 30 days after the employee notification.

For employees who do not opt out, the employer must collect, remit, and report contributions for each payroll period.  An employee’s initial default contribution rate is 5% the first year the employee is enrolled, increasing by 1% each year, up to 8%. Employees choose how their money is invested and have the option to:

  • Opt out at any time; or
  • Pay lower or higher contribution rates.

Employers who fail to comply with the program requirements will be subject to a $250 per employee penalty after receiving a notice of noncompliance.  The penalty will be increased to $500 per employee if the employer does not comply within 180 days. CalSavers currently has an enforcement program in effect for employers that should have registered in 2020 or 2021.

In 2018, a lawsuit was filed seeking to terminate the CalSavers program but in March 2022, the US Supreme Court refused to hear the case so the decision by the Court of Appeals in favor of the CalSavers program stands.

CalSavers offers employers a no-cost plan and no liability for an employee’s decision to participate in the program, for their investment decisions, or for the performance of those investments.  However, the plan does not offer many tax benefits to employees or employers.  An employer-sponsored plan can provide employees with current or future tax savings, and offers employer tax credits.  The federal SECURE Act, enacted in 2019, allows unrelated employers to collectively participate in a 401(k) plan minimizing administrative costs.  Employers without a retirement plan should consider establishing a plan as an alternative to the mandatory CalSavers program.

Please contact us for more information regarding the CalSavers program and your compliance responsibilities.

To enroll in the CalSavers program, or to certify an exemption for your business, visit: CalSavers Retirement Savings Program