If you’re an employer of California residents, you’re probably keenly aware of the June 30th CalSavers deadline. It might have you scrambling to set up your workplace retirement savings plan, or maybe you’re ahead of the curve and already have a plan in place. Either way, there are 5 things you need to know as this all-important date approaches.
1. The CalSavers deadline most likely applies to you. Over the past couple of years, the state of California has been gradually lowering the employee threshold at which it requires employers to offer a workplace retirement plan. If you have more than 100 employees, your deadline was September 2020; more than 50 employees, your deadline was June 2021 and now, if you have 5 or more California employees, your deadline to offer a retirement savings plan to your people is June 30th of this year. The mandate applies as long as at least one of your employees is 18 years of age or older
2. CalSavers is only for California-based employees. If you are one of the many companies that saw their workforce scatter during the pandemic, you have a choice to make. You can set up state-based retirement savings plans in every state in which you both have employees and one is available and required. Or, you can find a singular solution in the private market, like Icon.
3. There are financial penalties for not complying with the June CalSavers deadline. If you haven’t set up a workplace retirement savings plan for your California employees within 90 days of the June 30th deadline, you will be assessed a fine of $250 per eligible California employee. If you still haven’t enrolled your company in a plan by 180 days after the June deadline, you will be assessed an additional $500 per eligible employee.
California employees are considered eligible if they are: 1) Age 18 or older and 2) considered an employee under California law. The number of hours worked per week or their tenure is not a factor into their eligibility. You must upload all employee information to the CalSavers website within 30 days of their start date. Employees will then be automatically enrolled in the program if they do not opt out within 30 days thereafter.
While California law doesn’t require that you offer a workplace retirement plan to 1099 workers, Icon’s savings plan gives you that ability. With Icon, all workers, regardless of status, have the opportunity to save for retirement through automatic payroll deductions
4. CalSavers accounts have default settings that may not benefit all employees.
- The default account type is a Roth IRA. The default account type for CalSavers accounts is a Roth IRA which carries with it income limits based on tax filing status. In 2022, those limits are: $214,000 for a married couple filing jointly and $144,000 for single filers. If account holders earn above the income limit, they aren’t eligible to contribute to a Roth IRA and if they do so, they will have to unwind their contributions.
Account holders pay income taxes on Roth IRA contributions (although they don’t pay income taxes on the distributions they take later).
Account holders have the option to change their account type to a Traditional IRA, but they must take it upon themselves to do so.
- The default savings rate is 5%. Unless account holders designate a different contribution rate, 5% of their paycheck will be automatically deposited into their CalSavers account. Some workers may not be able to afford a 5% contribution and will thus be unpleasantly surprised if they’re not made aware of this default setting.
- Employees are automatically enrolled in the CalSavers retirement plan. California law states that employers must automatically enroll all eligible employees in the CalSavers program (if that’s the company’s chosen retirement plan). Employees must then take it upon themselves to opt-out if they don’t want to participate. This could leave some employees feeling like it’s a hassle to manage their account or it could take them by surprise should they either forget to opt-out.
5. Think a private market retirement savings program is a better fit for your company? You can un-enroll your company from CalSavers. If you signed up for CalSavers ahead of the June 30 deadline but you now see you have better options, you can unenroll from the program. You just need to contact CalSavers directly and they can help you through the process.
Icon is helping small and mid-sized companies to both comply with California law and offer their employees an easy and inexpensive way to save for retirement. The initial set-up for both employers and employees takes minutes, then Icon takes care of the rest. We handle employee education, investment management, communication with your payroll service, and we carry the fiduciary responsibility to the employees so all you have to do is upload employee information and approve their contributions. Icon is the easiest, quickest, and most affordable way to comply with the California June 30th deadline.