CalSavers. What you need to know

January 24, 2019

Have you heard of CalSavers?  No?  Well, if you’re a California business owner, have five or more employees but do not offer a retirement plan to your employees, you should probably read this.  Even if you don’t fall into this broad category of employers, it’s always good to be aware of the latest requirements issued by the State of California.  CalSavers is coming and will be here before you know it.

What is CalSavers? CalSavers (according to their website) “provides employees a retirement savings program without the administrative complexity, fees, or fiduciary liability of existing options for employers. Any employer with at least five employees that doesn’t already offer a workplace retirement savings vehicle will be required to either begin offering one via the private market or provide their employees access to CalSavers…covered employers can register for CalSavers at any time and will be required to comply”.

What does this mean for employers? As stated above, this is a requirement.  However, the State has decided to adopt a “phased-in” approach, similar to the increasing minimum wage requirements.  The program is scheduled to be implemented based on the following:

Company Size Dead Line
100 or more employees 06/30/2020
50 or more employees 06/30/2021
5 or more employees 06/30/2022

 

 

 

 

The State claims that implementation will require minimal effort on the part of employers and that the employers’ responsibilities will be limited.  These responsibilities include:

  1. Registering for CalSavers at: https://www.calsavers.com/home/employers.html
  2. Uploading an employee roster to enable enrollment of employee(s).
  3. If applicable, designating a payroll services provider to facilitate on their behalf.
  4. Transmitting the payroll contribution to a third-party administrator (to be determined).

What does this mean for employees? Once enrolled, employees would be able to contribute to their account via automatic contributions from each paycheck. Participants can choose to set their own contribution rate at any time. If an employee does not set their own rate, it will be set for them at a default rate of 5%. Unless they choose otherwise, their contributions will increase by 1% each year until reaching 8%.

Participants will have the option to choose among a small menu of investments that also includes a high quality bond fund and a global equity fund. If they don’t make an affirmative choice, their contributions will be invested according to the default investment types, with the first $1,000 in contributions invested in a capital preservation fund and each dollar contributed above that amount would be made into a target-date fund selected by the participant’s age.

What is the initial feedback?  It appears that this new offering is being met with mixed reviews.  For employers who simply cannot afford to implement a plan or for those who don’t have the resources internally to help manage all that offering a retirement plan demands, this will be a welcomed resource. 

For others, there are concerns that the State of California is once again attempting to overstep boundaries by inserting itself into an industry in which it has no expertise or history of success.  This cynicism is most likely predicated on the fact that like other government programs, it will be clunky, mismanaged, and create more problems than solutions.  One of the major hang-ups at this point is that the program requires employers to automatically enroll each of their employees (unless the employee(s) “opt out”).  This leads many, including the federal government, to believe that the program doesn’t meet the “completely voluntary” definition necessary to be considered a safe harbor plan.

How do I get more information?  More information can be found be visiting the CalSavers website at: https://www.treasurer.ca.gov/scib/.

About the Author

+Jesse Converse is a consultant with Morrison & Company, providing business valuations, business planning (including budgeting, cash flow forecasting, and strategic planning), feasibility studies, interim controller services, recruitment, competitive grant writing and special projects that don't fit into any conventional category. You can contact Jesse directly at jconverse@morrisonco.net or via telephone at 530-809-4670.

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