California will begin mandating employer participation in the CalSavers program. Under this program, private employers that don’t already offer a retirement plan must enroll their employees in a CalSavers account.
The program is being phased in over a three-year period. Employers with:
a. More than 100 employees must register by June 30, 2020
b. More than 50 employees must register by June 30, 2021
c. More than 5 employees must register by June 30, 2022
Once the employer is registered, they must provide CalSavers enrollment information packets to employees who are age 18 or older during an annual enrollment period. Employees can choose to opt out of the program. For those employees that do not opt out, the employer must collect, remit, and report contributions for each payroll period.
An employee’s initial default contribution rate is 5% the first year the employee is enrolled, increasing by 1% each year up to 8%. Employees choose how their money is invested and have the option to opt out at any time or pay lower or higher contribution rates.
Employers who fail to comply with the program requirements will be subject to a $250 per employee penalty after receiving a notice of noncompliance from the EDD.
Employers do not have any liability for an employee’s decisions to participate in the program, for their investment decisions, or for the performance of those investments.
Employers can register any time at www.calsavers.com. Whether a company registers now or closer to your deadline, you are required to add employees within 30 days of completing your registration. After a company registers, CalSavers will contact employees by e-mail or mail and provide an information packet with their options.
Contributions on behalf of an employee, are limited to a maximum of $6,000 / $7,000 (over 50) per year and are after-tax contributions. Employees though, can recharacterize their contributions to a Traditional IRA and possibly make them deductible pre-tax. Employees will have a range of options for their investments, including various mutual funds.
If you have any questions on CalSavers, please contact HMWC.
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