Cal Savers Retirement Plan: What you and your employees need to know

The California Secure Choice Retirement Savings Investment Program is now called the Cal Savers Retirement Savings Program (Cal Savers). This program provides workers whose employers don’t already offer a retirement plan a way to save for their retirement.

This program is available for employers with five or more employees and to take advantage of it, eligible employers must register with Cal Savers by June 30, 2022 or get connected with agencies like ourselves to get a simple retirement plan up and running by that same deadline.

What Is the Cal Savers Retirement Plan Program?

Cal Savers is a retirement savings program for private-sector workers whose employers don’t offer a retirement program. Once the program goes into effect, employees who haven’t opted out are automatically enrolled in Cal Savers and will have a percentage of their pay removed by Cal Savers to save for their retirement. Although eligible employees will be automatically enrolled (see How Do Employees Participate? below), participation in the Cal Savers program is voluntary and employees can opt out at any time. The program will be administered by a private-sector financial services firm (the program administrator) and overseen by the California Secure Choice Retirement Savings Investment Board (the Cal Savers board), a public board of directors chaired by the State Treasurer.

Which Employers Must Participate in the Cal Savers Retirement Plan Program?

The law applies to private-sector employers that:

• Have five or more employees; and
• Don’t maintain or contribute to a “tax-qualified retirement plan,” which is a plan that qualifies for favorable income tax treatment under Internal Revenue Code Sections 401(a), 401(k), 403(a), 403(b), 408(k) or 408(p) (payroll deduction IRA programs that don’t provide for automatic enrollment don’t qualify).

Employers that meet these two requirements are considered eligible employers. An employer that offers a tax-qualified retirement plan is not eligible and its employees can’t participate in the Cal Savers program.

When Does Participation in the Cal Savers Program Begin?

The Cal Savers Retirement Plan opened its program for employers to register on July 1, 2019 — and depending on the size of the employer, enrollment deadlines are:

• Employers with more than 100 employees must register by June 30, 2020;
• Employers with more than 50 employees must register by June 30, 2021; and
• Employers with five or more employees must register by June 30, 2022.

Employers can register via the Cal Savers website, by phone, by overnight mail or by regular mail.

What Is the Employer’s Role?

Under the Cal Savers Retirement Plan program, employers must:

• Register for the Cal Savers program in compliance with the above schedule.
• Within 30 days of registering, provide the Cal Savers program administrator with a collection of personal information about each individual employee. This information includes: the name, Social Security number, date of birth and contact information for each eligible employee.
• Ensure that each employee receives a packet of information from the program administrator.
• Calculate the appropriate rate of deduction for each employee, based on a schedule contained in the regulation.
• Deduct each employee’s contributions to the Cal Savers program from their salary.
• Remit the employee’s contributions to the program administrator within seven days of deduction.

In addition, if a new employee is hired after registration, that individual’s information must be submitted within 30 days of the date of hire.

Employers don’t pay any fees for their employees’ participation in the Cal Savers program and are not required to contribute to the Cal Savers program aside from remitting the prescribed portion of their employees’ salaries.

Employers are expressly prohibited from encouraging or discouraging employees from participating in the Cal Savers program, or from providing any advice about any decisions related to investment and contribution relating to the program.

How Do Employees Participate?

The Cal Savers program is set up for automatic enrollment. Once an employer reports eligible employee information to the program administrator, the administrator will send information to the employee about Cal Savers. If the employee doesn’t opt out of Cal Savers within 30 days of receiving that information, the employee will be automatically enrolled. Employees can opt out on the Cal Savers program website, by phone, by overnight mail or by regular mail. Employees who opt out can re-enroll at a later date.

By default, enrolled employees will see the default contribution amount (5 percent) be deducted from their pay, and they’ll see that percentage automatically increase by 1 percent annually until it reaches 8 percent, at which point it will cease increasing. However, employees can also elect alternative contribution amounts ranging from 0 to 100 percent of their compensation. Detailed information about the contribution amounts, automatic increases and investment options can be found in the Cal Savers Program Disclosure Booklet.

Best Practices 

• If you already offer a qualified retirement savings plan, your employees cannot participate in the Cal Savers program and you are not required to register.
• If you don’t offer a qualified retirement savings plan and you have five or more employees, you will want to review the registration process for the Cal Savers program and don’t wait until the last minute since the final deadline is vastly approaching. The alternative to this regulation, choose to offer a qualified retirement savings plan, which we can assist you with and point you to the right advisor to start the conversation.
• Keep an eye on legal happenings. The Cal Savers board passed the regulations implementing the Cal Savers program on an emergency basis and those will expire August 20, 2019. The Cal Savers board is in the process of adopting permanent regulations. Information about the status of the regulations can be found on the California State Treasurer’s website. In addition, litigation challenging the program is pending.
• The Cal Savers program offers various resources for employers, including account setup resources and a Program Disclosure Booklet that contains a detailed description of how the program works. More information can be found on the program’s HERE.

Please note this information is provided for educational purposes only. It is not intended to provide legal or financial advice. For more information or guidance through the Cal Savers process, you will need to contact Cal Savers directly.

For options outside of Cal Savers, you may contact Jon Pollock with M&G at jpollock@morrisgarritano.com.