Compliance Check-in: Got 401K?
You may have recently received an email stating that you are required to register for California’s new CalSavers Program.
What is CalSavers? CalSavers was created by legislation passed in 2016 requiring California employers that do not sponsor a retirement plan to participate in CalSavers – an automatic enrollment individual retirement account (IRA) with no employer fees or fiduciary liability. Operating at no taxpayer expense, CalSavers is professionally managed by private sector financial firms with oversight from a public board chaired by the State Treasurer.
This requirement currently applies to California employers with more than 50 employees. The program is being phased in over a three-year period, and employers must register and participate as follows:
- More than 100 employees were required to register by September 30, 2020;
- More than 50 employees must 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.
If you do not offer a plan for your employees, you must also enroll each of your employees in a CalSavers account unless the employees opt out. CalSavers accounts are Roth IRA accounts and are subject to contribution and participant income limits applicable to all other Roth IRA accounts.
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, any employee 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.
Employers do not have any liability for an employee’s decisions to participate in the program, for their investment decisions, or for the performance of those investments.
If you are unsure where to begin with all of this stuff, please contact Sarah Prince for details. She will provide you additional guidance and resources. Please be aware, we are not 401k providers, but are happy to provide you a referral to a licensed, qualified representative. You may also visit the CalSavers website for details.
Have Questions About Compliance or 401Ks?
A team member is standing by ready to be of assistance!