The United States Court of Appeals (9th Circuit) recently upheld California’s CalSavers Retirement Savings Program (CalSavers), which provides retirement savings accounts to employees without employer retirement benefit plans. The Howard Jarvis Taxpayers Association sued to challenge the law establishing the CalSavers program arguing that it was superseded by federal retirement law, specifically the federal Employee Retirement Income Security Act of 1974 (ERISA). However, the U.S. Appeals court upheld the CalSavers program holding that it was not preempted by ERISA.

CalSavers was established to assist the estimated 7.5 million California employees without employer retirement savings plans. Mandatory compliance is phased-in over time and depends on the size of the employer. Those employers offering retirement plans to their employees need only certify that they are exempt. The link to the CalSavers website to register or certify as exempt is here.

The current phase requires all California employers with 51 to 100 employees to register with CalSavers or certify that they are exempt by June 30, 2021. The deadline for employers with more than 100 employees was September 30, 2020. Those employers who missed this deadline should register as soon as possible.

The last phase requires all California employers with 5 to 50 employees to register with CalSavers or certify that they are exempt by June 30, 2022. However, regardless of their applicable registration deadline, the state encourages eligible employers of any size to register at any time; indeed, registration has been possible since July of 2019. 

An employee’s CalSavers account is a Roth IRA, which contributes sums earned after tax withholdings. The default savings rate is 5% of an employee’s gross pay, and employees can change that rate at any time. Once an employer registers for CalSavers, its employees will be auto-enrolled after 30 days and will begin saving through payroll contributions unless they opt out. An employee can opt out or back into the program at any time. An employee’s CalSavers account is portable and will belong to the employee even if he or she changes jobs. California employers are not required to make contributions to the retirement account.

Penalties per eligible employee apply for failure to comply without good cause.  Within 90 days of a non-compliance notice, eligible employers failing to allow eligible employees to participate in CalSavers are subject to a penalty of $250 per eligible employee, and if found to be in non-compliance 180 days or more after the notice, an additional penalty of $500 per eligible employee applies.

The author would like to gratefully acknowledge the assistance of Joanne Warriner.

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