By Gage C. Dungy and Errol C. Dauis
Does your private sector business have more than 50 employees? If so, California law requires your business to register with the CalSavers Retirement Savings Program (“CalSavers”) by June 30, 2021. The CalSavers registration is required for a covered employer to confirm that it either provides its employees access to a CalSavers Individual Retirement Account (“IRA”), or that it is exempt from doing so because it already offers a qualified retirement plan to its employees. Below is an overview of the CalSavers program and the employer registration requirements.
CalSavers Program Overview
In 2017, a new California law went into effect that created CalSavers with the goal of providing private sector employees with an opportunity to save for retirement if their employers did not offer any form of a retirement savings program. Phased in over time, California private sector employers are required to participate in CalSavers if they do not already offer an employer-sponsored retirement plan to their employees. Only public sector employers and religious organizations are completely exempt from the CalSavers program.
Through CalSavers, employees can voluntarily contribute a portion of their earnings into an IRA through payroll deductions. Participating employees can then choose their contribution rate, change their investments, or opt out (and opt back in) at any time.
While employees have the option of contributing to a CalSavers IRA, almost all California private sector employers are required by law to register with CalSavers depending on the size of the employer:
Size of Employer Registration Deadline
More than 100 employees Sept. 30, 2020
More than 50 employees June 30, 2021
Five or more employees June 30, 2022
The deadline for private sector employers with more than 100 employees to register with CalSavers was last year on September 30, 2020. However, the next deadline for private sector employers with more than 50 employees to register is approaching quickly on June 30, 2021.
Employer size is calculated by averaging the number of employees reported to the Employment Development Department on the previous four “Quarterly Contribution Return and Report of Wages (Continuation)” (Form DE 9C) filings.
While private sector employers that already offer a qualified retirement plan to their employees do not have to participate in CalSavers, they still must register as “exempt” on the CalSavers website.
CalSavers is sending out notification letters to covered employers regarding this registration requirement along with an access code to use in the registration process. Employers can then register with CalSavers at any time prior to their applicable registration deadline using that access code. If a covered employer did not receive a notification letter or misplaced the access code previously provided, it can request a new registration access code on the CalSavers website.
Although there is no immediate “penalty” for failing to register or claim an exemption, if an employer fails to respond to a CalSavers notice requiring it to register or claim an exemption, the employer may be subject to a noncompliance penalty.
An employer that receives a notice of noncompliance from CalSavers and fails to comply with the requirements of that notice within 90 days will be subject to a penalty of $250 per employee. The penalty increases to $500 per employee if the employer does not comply within 180 days of the noncompliance notice. The Franchise Tax Board oversees the collection of these penalties.
In conclusion, private sector employers need to ensure that they are registered with CalSavers before the applicable deadlines noted above.