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Navigating CalSavers: A Guide for Small Business Owners in California

In an effort to ensure that all workers in California have access to retirement savings plans, the state has introduced the CalSavers program. This initiative is particularly relevant for employers who do not currently offer a retirement plan to their employees. Here's what you need to know to navigate this program and ensure your business is compliant.

Who Needs to Register?

As of now, employers with five or more California W-2 employees who do not provide a retirement plan must register for CalSavers. This threshold is set to lower in 2025, requiring even single-employee employers to register. Sole proprietors and self-employed individuals, as well as businesses that do not employ anyone other than the owners, are not required to participate.

New businesses falling into the eligible category must register within 24 months of becoming an eligible employer.

How Does CalSavers Work?

CalSavers accounts are Roth IRA accounts, which means they are funded solely by the employee through payroll contributions. Employers are not allowed to contribute to these accounts. The responsibility of the employer is limited to registering for CalSavers, providing an employee roster for enrollment, and handling the payroll deductions for employees who choose to participate.

Enrollment and Contributions

Employees aged 18 or older must be enrolled in the plan, or opt out, within 30 days of receiving notification from their employer. The initial default contribution rate is set at 5% of the employee's paycheck, increasing by 1% annually up to a maximum of 8%. Employees have the flexibility to adjust their contribution rates or opt out at any time.

Compliance and Penalties

Failure to comply with CalSavers registration and participation requirements can lead to significant penalties for businesses. After a notice of noncompliance, employers face a $250 per employee penalty, which increases to $500 per employee if noncompliance persists for 180 days.

It's important to note that employers are not liable for the investment choices or outcomes of their employees within the program.

Registration and Exemption

To register your business with CalSavers or to certify an exemption, visit the official CalSavers website. This platform will guide you through the registration process or help you file an exemption if you already offer a retirement plan to your employees.

Final Thoughts

The CalSavers program represents a significant step towards increasing access to retirement savings for all workers in California. For small business owners, understanding and complying with these requirements is crucial to avoid penalties and support your employees' financial futures. If you have any questions or need assistance with the registration process, don't hesitate to reach out for professional advice.

For more detailed information and to begin the registration or exemption process, please visit the CalSavers Employer Portal.

Remember, preparing for the future starts today, and ensuring your employees have access to retirement savings is a key part of that journey.