CalSavers is geared to those who lack an employer retirement plan.
CalSavers is aimed at private- sector workers who don’t have access to an employer plan.
It’s a vast understatement to say that Californians have been feeling the f inancial pinch of the coronavirus crisis. But even before the pandemic began, many across the state were living in dire economic straits — a reality that a new state retirement program, launched in July 2019, aims to address.
“Nearly half of working Californians are on a trajectory to retire in economic hardship,” says Katie Selenski, executive director of CalSavers, which will offer potentially millions of workers an automatic way to save for retirement.
CalSavers targets “workers in the private sector who don’t have access to a retirement plan at work,” Selenski says.
As Margot Roosevelt reported last year, employers with f ive or more workers will eventually be required to sign on to CalSavers — and facilitate putting a cut of workers’ paychecks into Roth IRAs — if they don’t already offer their employees a way to save and invest for retirement.
We’re approaching an important deadline for employers that don’t sponsor a retirement plan: Those with more than 100 employees must register with CalSavers by Sept. 30.
Here’s what employers and workers should know about the program.
What does the CalSavers program offer?
First and foremost, CalSavers offers workers — including part- time and short- term employees — an easy way to save for their retirement.
“When people have access to an automatic enrollment in a workplace retirement plan, they’re 15 times more likely to save,” Selenski says. “One of the big drivers of our retirement and security problems in the state is that so many millions of Californians don’t have access to an easy workplace plan where they can just set it and forget it.”
CalSavers has benefits for employers too. There are three main reasons employers haven’t been offering retirement plans, Selenksi says: cost, administrative burden and the fiduciary liability that comes along with sponsoring a plan. CalSavers is designed to address these concerns.
In addition to being free for employers, “we have made it as easy as possible for them to facilitate their employees’ payroll deductions,” Selenski says. Plus, the employers “are not the plan sponsor, so they don’t have the fiduciary liability.”
What are the deadlines for businesses, and how do they sign up?
Businesses with more than 100 employees must register with CalSavers by Sept. 30. Those with 51 to 100 employees have until June
30, 2021, to register, and those with five to 50 employees have until June 30, 2022.
Companies that already sponsor a retirement plan or that have fewer than five employees don’t have to sign up.
Businesses that fail to register will get a notice from the state. If they don’t have what the state considers a good reason and if they still haven’t signed up within 90 days of receiving the notice, financial penalties start kicking in, according to the CalSavers website.
To get started, employers should visit the CalSavers website to register and confirm their information. “It takes about two minutes,” Selenski says.
After registering, employers upload their roster of employees, and the state contacts those workers, who have 30 days to opt out of the program. CalSavers will tell each company which of its staffers haven’t opted out, and from there, employers will need to facilitate the deductions each payroll cycle.
If employers have questions, CalSavers is willing to help, Selenski says. “We have a dedicated onboarding team to work with employers or their payroll representatives to get through that first payroll cycle.”
What should employees of businesses getting involved in CalSavers know?
For workers, participation in CalSavers is completely voluntary. “But they do need to opt out if they don’t want to participate,” Selenski says.
CalSavers says it will reach out to workers by either mail or email, using addresses provided by the employer, so workers may want to make sure their company has up- to- date contact information and check those mailboxes regularly.
Those who don’t opt out of the program will be enrolled at a default setting of 5% of gross pay. That money is taxed, taken out of the worker’s paycheck and deposited in the retirement savings account. The worker can adjust the rate at any point.
The program also has an automatic increase feature that notches up the savings rate 1% annually until it reaches 8%, unless the worker decides otherwise.
CalSavers provides a number of investment options with varying degrees of risk. If workers do not select a specific investment option, their first $ 1,000 in contributions gets invested in the CalSavers Money Market Fund and subsequent contributions are invested in a target retirement date fund based on their age, according to the CalSavers website.
Workers can change their investment selections at any point.
A person with more than one job could be enrolled in CalSavers through each employer, and could choose to contribute through all, any or none of those jobs, Selenski says. If the person doesn’t want to participate at all, they would have to opt out multiple times: once per participating employer.
It’s important to note that the retirement account is a Roth IRA, and that the Internal Revenue Service has rules restricting the amount of money that each person can contribute to such accounts each year.
High earners and the spouses of high earners are at risk of exceeding that maximum if they enroll in CalSavers — and it’s their responsibility to keep their savings rate low or opt out of the program so as to stay within the limits.
What about Californians who don’t have access to any retirement plan through work?
CalSavers lets people enroll by themselves under those circumstances. “You must have earned income, be at least age 18, have a bank account from which you will make contributions, and provide some personal information,” the program says on its website.
What are the limitations of CalSavers?
Some investment experts and human resource professionals caution employers about enrolling with the CalSavers program without first exploring alternatives.
Now is a good time to consider your options when selecting retirement plans, says Linda Duffy, founder and president of human resources consulting firm Ethos Human Capital Solutions.
Although participating in CalSavers is free, “businesses are going to be forced to take the time to allocate resources to register for the CalSavers program and deposit contributions every pay period,” says Danielle Sesock, senior vice president of sales at Ryding Co., which works with business owners to pick retirement plans. “They have to set aside the time to administer the program, but they have no oversight of the program.”
Because offering retirement plans can be a way to attract and keep talent, many employers want more control, Sesock says.
In addition, there are tax benefits for employers that offer retirement plans and match a portion of their employees’ contributions, which they can’t do with CalSavers, says Phuong Jennings, a regional vice president at consulting firm Economic Group Pension Services.
CalSavers’ purpose is to give more workers in California access to a retirement savings plan, but it’s not necessarily the best option: Selenski acknowledges businesses may want to offer private plans instead.
“401( k) s have some substantial advantages over an IRA for workers who can afford the higher contributions and for employers who can afford to manage and sponsor a plan,” she said via email. “We’re here for folks who can’t.”