California’s CalSavers Retirement Savings Program continues to expand, impacting employers across the state. Recent legislation has brought smaller businesses into the fold, creating new compliance requirements for businesses with 1 to 4 employees by December 31, 2025. Whether you have a handful of employees or a growing team, here’s what you need to know about CalSavers and how it affects your business.
What Is CalSavers?
CalSavers is a state-sponsored retirement savings program designed to provide employees without access to an employer-sponsored retirement plan, such as a 401(k), with a simple way to save for their future. Employees are automatically enrolled in a Roth IRA with contributions deducted directly from their paychecks.
For employers, the program mandates either facilitating CalSavers enrollment or offering their own qualified retirement plan.
How CalSavers Impacts Businesses by Size
Businesses with 5 or More Employees
- Requirement: Employers with 5 or more employees were required to register for CalSavers or offer their own qualified retirement plan by June 30, 2022.
- Compliance: If you haven’t registered yet, you may already be subject to penalties of up to $750 per eligible employee.
Businesses with 1 to 4 Employees
- New Legislation: Starting December 31, 2025, businesses with 1 to 4 employees must also comply by either:
- Registering with CalSavers.
- Offering a qualified retirement plan, such as a 401(k).
- This marks the latest phase of California’s effort to ensure more workers have access to retirement savings.
What Employers Need to Do
Assess Your Workforce Size:
Determine whether your business falls under the 1–4 or 5+ employee categories to understand your current or upcoming obligations.Choose the Right Plan for Your Business:
- CalSavers: Provides a no-cost, no-contribution option for employers but requires administrative tasks like employee enrollment and payroll deductions.
- Employer-Sponsored Retirement Plans (e.g., 401(k)): Offers greater flexibility, higher contribution limits, and potential tax incentives for employers.
Meet Deadlines:
- Employers with 1 to 4 employees must comply by December 31, 2025.
- Employers with 5 or more employees should already be compliant or act quickly to avoid penalties.
Educate Your Employees:
- Explain the benefits of saving for retirement through CalSavers or an alternative plan to help your team make informed decisions.
Penalties for Non-Compliance
Failing to comply with CalSavers requirements can result in significant penalties:
- $250 per eligible employee if non-compliance extends 90 days after receiving a notice.
- An additional $500 per eligible employee for continued non-compliance after 180 days.
Why Consider a 401(k) Instead?
While CalSavers fulfills the minimum requirement, offering a 401(k) or another qualified retirement plan could be more advantageous for both you and your employees:
- Higher Contribution Limits: Employees can save more for their future.
- Tax Incentives: Employers may qualify for federal tax credits to offset setup costs.
- Attract and Retain Talent: A competitive benefits package, including a robust retirement plan, can set your business apart.
Take Action Today
The expansion of CalSavers to include businesses with 1 to 4 employees means that every California employer, regardless of size, must address retirement savings requirements. Don’t wait until the last minute—start exploring your options now.
If you’re unsure how to comply or want to explore better alternatives, I can help. Together, we’ll create a plan that supports your business and empowers your employees to secure their financial futures.