We’ve all heard concerns for years that the federal Social Security fund is projected to become insolvent within the next twenty years or so. In response, California has enacted the California Secure Choice Retirement Savings Trust Act which will require all employers with five (5) employees or more to enroll their employees in the CalSavers Retirement Savings Program if they do not offer an employer sponsored retirement plan.
The requirement was phased in over three years, and the final deadline is fast approaching:
- June 30, 2020 – more than 100 employees
- June 30, 2021 – more than 50 employees
- June 30, 2022 – 5 or more employees
The CalSavers website (calsavers.com) contains all of the information employers need to register in the program. Unlike traditional 401k retirement plans, the employer will not have any fiduciary duties or associated risk. Employers will have administrative responsibilities to transmit employee contributions, and to add or remove employees from their account upon hire and separation. Employers do not fund the program and there are no company matches. All funds come out of employees’ gross wages. Although employers are not required to provide disclosures or answer questions about the program, they will undoubtedly face questions, so the CalSavers website includes plenty of education materials that employers can distribute to employees.
Employees over 18 years of age are auto-enrolled in the program into a Roth IRA at 5% of their gross wages unless they fill out a form to opt-out or enroll at a different percentage. They are responsible for maintaining their own accounts (including updating their contact information), reading the education materials, and for opting out if they don’t want to participate.
The CalSavers program is overseen by the California Secure Choice Retirement Savings Investment Board and administered by Ascensus College Savings Recordkeeping Services, LLC. Employers should not endorse the program, encourage or advise employees on whether to participate, or provide investment help. Detailed information for employers and employees is available on the CalSavers website: calsavers.com.