What you Need to Know about California’s State-Mandated Retirement Legislation

If you are a California business owner, you have probably heard of CalSavers, California’s state-mandated retirement savings program. CalSavers is designed to improve the financial security of private sector employees in retirement. By June 5, 2022, all employers with more than five employees are required to offer a qualified plan – either their own or CalSavers – or face a fine.

What types of plans are available?
CalSavers is a Roth individual retirement account (IRA) wherein contributions are made post-tax and qualified distributions are tax-free. Participants do have the option to re-characterize their account as a traditional IRA. The 2022 annual contribution limit for a Roth IRA is $6,000 in 2022 for those under 50 and $7,000 if you are over 50.

Who can contribute?
Only employees, not employers can contribute to CalSavers.

How much can employees contribute?
Employees are automatically enrolled at a default contribution rate of 5%. It increases 1% each year until it hits the maximum 8%. Employees can change their contribution rate or opt out of the program at any time.

Which investment options are available?
Unless participants select otherwise, initial contributions are automatically invested in the CalSavers Money Market Fund. 30 days after enrollment, funds will automatically transition into a Target Retirement Fund based on expected age of retirement or to a fund of the participant’s choosing. Other investment options include an environmental, social and governance fund, core bond fund, global equity funds or a money market fund.

What are the penalties for non-compliance?
Employers that fail to offer a plan by the deadline may face financial penalties ranging from $250-500 per eligible employee depending on how long they have been non-compliant.

The CalSavers program is one of many options available to employers. Before deciding on the type of retirement plan to offer, we recommend weighing your options to determine what makes sense for your individual business. The team at Trost Financial  is looking forward to helping you navigate your retirement funding needs.