Audience: Resources for Employers

Understanding CalSavers: A Comprehensive Guide for Resources for Employers 2024

Posted on April 28, 2025 by - Retirement Benefits

Things to Know

California law currently requires all employers with 5 or more employees to offer a retirement plan.

The deadline to comply was June 2022.

Starting in 2025, employers with 1 or more employees will have to offer a retirement plan.

The state can impose fines of up to $750 per employee for failure to comply.

To comply, employers can offer a retirement plan through a provider of their choice, or use the state-run plan.

This guide will help you understand what CalSavers is and who it applies to, along with what you need to do to comply.

What is a The Retirement Mandate law in California?

California law makes it mandatory for employers with 5 or more employees to provide a retirement savings plan to their employees. The deadline was June 2022, and employers not complying are subject to fines. Starting in 2025, this law will apply to any employer with at least one employee in California. The law is meant to help combat the retirement savings crisis prevalent in the state, where nearly half of private sector employees lack access to retirement plans at their workplace.

What is CalSavers?

CalSavers is the name of the state-run retirement plan. It was designed to provide a retirement savings option for employers that don’t offer a retirement plan and don’t want to offer a plan through a retirement plan provider. The program is funded by employee contributions, which are deducted automatically from their paychecks. CalSavers is a payroll deduction Roth IRA, which means contributions are made post-tax.

How Does CalSavers Work?

As an employer using CalSavers, you’ll have some steps to take to get started along with ongoing responsibilities. After you register for CalSavers, you’ll need to upload your roster of eligible employees. Then, your role in the CalSavers program is to facilitate your employees’ contributions. This means you’ll need to deduct the contributions from your employees’ paychecks and send them to CalSavers. You’ll also need to manage your employees’ enrollment in the program, including tracking who’s participating and who’s opted out.

Remember, you’ll have the ongoing responsibility of keeping your account current. This means you need to update employee contribution rates when employees make changes, add new employees within 30 days of their hiring or when they become eligible, and mark employees as inactive if they leave or are terminated. Additionally, you’ll continue to process payroll contributions for participating employees.

Who Needs to Comply with CalSavers?

If you’re an employer with 5 or more employees in California and you don’t already offer a retirement plan, you’ll need to register with CalSavers or offer a retirement plan through a provider of your choice. If you don’t, you could face steep penalties. The penalties for non-compliance start at $250 per employee and can go up to $750 per employee.

CalSavers compared to 401k plans and PRPs

CalSavers is not your only choice when it comes to offering a compliant retirement benefit. The two other plan types that comply with the mandate are a 401k and a PRP.

The familiar 401k plan was created to replace pension plans at large companies. It allows employees to contribute a portion of their income, pre-tax, into a retirement account. Many small businesses find that the 401k is cost-prohibitive and that they don’t have the resources to manage them. As an employer sponsoring a 401k plan, you become a fiduciary to your employees and can be sued if you don’t act in the best interest of the plan participants. 

PRPs (Portable Retirement Plans) are a new type of retirement plan offered by Icon. PRPs work like a 401k but without the high cost, regulatory complexity, and fiduciary burden. Both 401k plans and PRPs offer tax-advantaged savings and automatic payroll contributions, but PRPs have some big advantages: 

  • No federal filings or reporting
  • No fiduciary burden
  • Flat monthly cost, predictable pricing
  • No rollover required
  • No ERISA bond

The PRP by Icon is an easy and affordable way to meet the California mandate. With a PRP you can meet the California retirement mandate and provide your employees with a valuable retirement savings plan without the hassle and complexity of 401k plans.

Frequently Asked Questions

1. How can I ensure I’m in compliance with the California retirement mandate?

To ensure you’re in compliance with the mandate, you can either offer a qualifying retirement plan (like the PRP by Icon) or register to facilitate CalSavers. If you choose to offer a PRP, we’ll provide the documentation you need to show you’re in compliance.

2. How does the PRP compare to CalSavers?

PRPs by Icon are fully automated, removing the administrative burden from employers. You can set up your plan in minutes, and we integrate with your banking and payroll partners. Once you launch your plan, we handle the rest, including employee enrollment and communications. You’ll get access to your employer dashboard so that you can easily review and monitor your plan.

CalSavers offers a limited number of investment options. With Icon, employees get a portfolio tailored to their needs, giving them a more personalized plan that is managed for them. Plus, while CalSavers may not cost employers any money, the fees charged to employees are higher and the employer will spend their time with the ongoing responsibilities of managing CalSavers.

3. How can I get started with Icon?

Getting started with Icon is easy. Just visit our website, click on “Get Started,” and follow the prompts to set up your plan. We’ll guide you through the process and provide all the support you need. Signing up only takes about 5 minutes.

4. What if I already offer a retirement plan to my employees?

If you already offer a retirement plan, you can still switch to Icon – it’s easy, and we’ll help you make the change

5. What are the benefits of offering a retirement plan to my employees?

Offering a retirement plan can help attract and retain top talent, improve employee satisfaction, and provide a tax-advantaged way for your employees to save for retirement.

6. How can I educate my employees about retirement savings?

If you choose Icon’s PRPs, we provide educational resources and support to help your employees understand their retirement savings options. Educating your employees about retirement savings is important for their financial future.

7. What if my business grows and I have more employees?

With Icon, we scale with you. Whether you have 5 employees or 500, we make it easy to offer a retirement plan.

Get in Touch

We’re here to help! If you have any questions or need a hand navigating your retirement plan options, don’t hesitate to get in touch with us. We’re here to help you find the best solution for your business.

Small Business 401k Provider Alternatives: The Future of Retirement with PRPs

Posted on October 11, 2024 by - Retirement Benefits

As a small business owner, you want to take care of your employees, grow your company, and stay ahead of the competition. But let’s face it: the 401k, especially for small businesses, is outdated. It’s expensive, complicated, and designed for a corporate world that no longer exists. It’s time to rethink retirement benefits, and that’s why the Portable Retirement Plan (PRP) was created. It’s the solution built for the future.

Why the 401k Fails Small Businesses

Here’s the truth: 401k plans were not designed for small businesses. They were created for massive corporations that have the resources to manage the legal hoops, compliance testing, and fiduciary risks. Most small business owners simply don’t have the time, money, or bandwidth to deal with the complexities that come with offering a 401k.

Here’s why small businesses struggle with 401ks:

  • High Costs: From administrative fees to compliance and investment management costs, a 401k plan is expensive to maintain. For small businesses, these fees can eat up precious resources.
  • Complex Regulations: 401k plans require adherence to strict IRS and Department of Labor regulations. This includes annual compliance testing to ensure fairness across all employees. Navigating these regulations is time-consuming and a headache for small business owners.
  • Fiduciary Responsibility: Offering a 401k means you are legally responsible for your employees’ retirement funds. Even if you work with a provider, some fiduciary duties remain on your shoulders, exposing you to potential legal risks.
  • Limited Flexibility: Small businesses tend to have a mobile workforce with high turnover. Traditional 401k plans don’t offer the flexibility needed for employees who frequently switch jobs, and the rollover process can be a hassle.

Safe Harbor 401k Plans: A False Safety Net

Many small businesses turn to Safe Harbor 401k plans because they automatically pass IRS non-discrimination testing, ensuring the plan benefits all employees, not just the top earners. In fact, 70% of SMBs choose Safe Harbor plans to avoid failing compliance tests.

But here’s the catch: Safe Harbor plans require mandatory matching contributions for all employees, regardless of whether your business can afford it. These contributions typically range from 3-4% of each employee’s salary. So, while Safe Harbor plans save you from compliance headaches, they can significantly increase costs, especially as your business grows.

For a small business, that mandatory match can put a serious strain on resources. The more employees you have contributing, the higher the cost burden on your business.

The PRP: The Game-Changer for Small Businesses

This is where the Portable Retirement Plan (PRP) comes in. It’s a modern, flexible, and affordable alternative to the traditional 401k. Here’s why it works for small businesses:

  • Lower Costs: Forget the surprise fees that come with a 401k. PRPs offer predictable, lower costs with simple, flat fees—whether monthly or annually. You’ll never be blindsided by hidden charges or required matching contributions.
  • Simplicity: PRPs remove the administrative burden that comes with 401ks. There’s no need for annual compliance testing, and no complicated IRS regulations to navigate. It’s built for ease of management.
  • No Fiduciary Risk: One of the best things about a PRP is that it eliminates fiduciary responsibility for the employer. When you work with a provider like Icon, they assume fiduciary duties on behalf of your employees, saving you from legal risks and the need for costly fiduciary insurance.
  • Portability for Employees: PRPs address one of the biggest flaws in the 401k—the portability problem. Employees can take their retirement savings with them wherever they go, without needing to roll over accounts.

Why PRPs are the Future

The PRP isn’t just an incremental improvement. It’s a breakthrough. This is what the 401k should have been—a flexible, affordable, and portable retirement solution for the modern workforce. And now, it’s available to every small business, not just the big guys.

By embracing the PRP, you’re not just offering your employees a retirement plan—you’re providing them with a future. And you’re doing it without sacrificing your time, money, or peace of mind.

So, ask yourself: Do you want to keep using the same outdated tools that hold your business back, or do you want to be part of the future of retirement planning?

Understanding the 401k Tax Credit for Small Business Owners

Posted on May 14, 2024 by - Retirement Benefits

If you’re a small business owner considering a 401k plan for your employees, navigating the intricacies of tax credits and setup costs can be daunting. To simplify this process, let’s break down the 401k Setup Tax Credit and what it really means for your business.

1. Eligibility and Covered Expenses:

Small businesses with 100 or fewer employees who earned at least $5,000 last year and have not had a retirement plan in the past three years qualify for this tax credit. The credit can help cover the initial costs associated with setting up the 401k plan, including administrative fees and employee education about the plan.

2. Amount of the Credit:

You can claim 50% of your setup costs, up to a maximum of $5,000 per year for the first three years. This means the total potential savings could reach up to $15,000.

3. Upfront Costs:

Despite the tax credit, you’ll need to pay all initial costs of setting up and administering the plan. These expenses include fees for plan setup, administrative services, and employee training sessions on plan benefits.

4. Claiming the Credit:

After paying these initial costs, you can claim the tax credit when you file your annual business taxes. This credit reduces your tax liability; however, if the credit amount is more than your tax due, the excess won’t be refunded and can’t be carried to other tax years.

5. Ongoing Costs After Credit:

It’s crucial to understand that after the first three years, you’ll be responsible for all ongoing costs of the plan. These include yearly administrative fees and any other expenses necessary for maintaining the plan.

6. Fiduciary insurance:

Employers need fiduciary insurance for their 401k plans to protect themselves against liability for breaches of fiduciary duties. Managing a 401k involves making critical decisions about plan management and investments, and fiduciary insurance helps cover legal fees, settlements, and other costs arising from claims of mismanagement or negligence.

7. Shutting down a 401k plan:

Shutting down a 401k plan can be a complex and costly process, requiring meticulous administrative work. This includes filing final forms with the IRS, distributing all assets to participants, and possibly incurring penalties for early termination. The decision to close a 401k is significant, both in terms of procedural burden and financial impact on the employer.

Practical Implications for Small Business Owners:

  • Financial Planning: Ensure you have the necessary upfront cash to cover the initial setup costs. The tax credit is beneficial, but it doesn’t provide immediate cash flow since it only affects your tax liabilities when you file.
  • Long-term Budgeting: Plan financially for the ongoing costs of maintaining the plan beyond the initial three years.
  • Business Cash Flow: Assess your business’s cash flow to ensure it can handle the recurring costs of the 401k plan without relying solely on the tax credit.

Additional considerations:

  • New 401k plans require auto-enrollment of all employees.
  • Matching contributions have to be paid to all employees in a safe-harbor plan.
  • 401k plan audit costs should also be factored into your budgeting considerations.

As you consider setting up a retirement plan for your small business, it’s essential to explore all your options. While the 401k Setup Tax Credit may provide an incentive, it’s worth noting that these plans can still be financially burdensome in the long run. At Icon, we offer an alternative solution with our Portable Retirement Plan (PRP). Designed to be both high-quality and affordable from the start, the PRP eliminates the need for tax credits while still providing your employees with a robust retirement savings option. By choosing the PRP, you can enjoy the benefits of a top-tier retirement plan without the hefty price tag, helping lead your business and your employees to a more secure financial future.