California recently joined a growing list of states to launch a state-run retirement program. The program, CalSavers, is a state-mandated program that eventually will require all employers to participate, if they do not have a qualifying retirement program. Once the program is in full effect, there will be penalties for employer non-compliance.
Let’s get down to all the details of CalSavers that you need to know!
What does CalSavers offer?
CalSavers is an automatic Roth IRA contribution program mandated by the state of California. The ROTH contribution rate is 5% of pay for persons aged 18 or more that have been employed for at least 30 days. This rate will automatically increase by 1% every year until the maximum percentage of 8% is reached. Individual employees will have the option to elect a different contribution rate, elect out of the auto-increase, or opt out of the program altogether, if they so choose.
What are the employer responsibilities to CalSavers?
If an employer does not offer a workplace retirement option for their employees, that employer must register with CalSavers. The employer must create a payroll list of all W-2 paid employees that are at least 18 years of age and have been employed on a full-time or part-time basis for at least 30 days.
The employer must then submit contributions directly to the CalSavers program or delegate a state-approved payroll provider to do so. A lack of employer action, whether failing to register for a qualifying exemption or failing to enroll employees, will result in financial penalties. These penalties can range from $250 to $500 per eligible employee!
The deadlines for employer action are as follows:
- June 30, 2020 for businesses with 100 or more employees
- June 30, 2021 for businesses with 50 or more employees
- June 30, 2022 for businesses with 5 or more employees
What qualifies as an exempt retirement option?
Employers can qualify for a CalSaver exemption if they offer employees SEP-IRAs, SIMPLE-IRAs, Payroll Deduction IRA programs with automatic enrollment, 401(k) plans, 403(a) and 403(b) plans, 457(b) plans, Pension plans, or if the employer participates in a Multiple Employer Plan (MEP). Employers that maintain a retirement plan listed above) may obtain an exemption by the state of California that allows them to elect out of the CalSavers program without facing a penalty. You can find a more complete list of exempt plans and more information about the state CalSavers program here.
Alternatives that keep you compliant.
Boon offers a retirement solution uniquely designed as a fringe benefit solution for companies working on projects subject to the Davis-Bacon Act (DBA}, Service Contract Act (SCA), and state prevailing wage laws. Boon is dedicated to providing transparent, effective and professional investment management services to 401(a) and 401(k) plans under Boon Investment Advisors, Inc.
Compliance is a cornerstone of our “3 Cs” approach to building benefits. We provide education and guidance to our clients to ensure their compliance with federal, state and local requirements and help them choose solutions that are the perfect fit for their needs.
Between CalSavers and a host of exempt plans, there are plenty of options available to employers. The difficult part is picking the option that is the right fit. Learn more about what we do at Boon — our solutions are custom-fit to your needs.
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