Many people find themselves financially unprepared for their non-working retirement years. According to the most recent National Retirement Risk Index, nearly half of Americans age 55-59 have insufficient savings to maintain their pre-retirement standard of living .
In response, California has recently established its own state-run retirement plan. The plan has been mandated for use by business owners who otherwise do not offer a retirement plan benefit program for their employees, such as a 401(k), SIMPLE IRA or SIMPLE 401(k).
Here are some of the frequently asked questions being asked by employers like you:
What is CalSavers?
In 2016, Senate Bill 1234 was passed, requiring the state to develop a workplace retirement savings program, known as CalSavers, for private sector workers whose employers do not offer a retirement plan. State law protects employers from any liability or fiduciary responsibilities to the plan.
Who is required to implement the CalSavers program?
Employers with five or more employees who do not provide a retirement plan for their workers must register for CalSavers and facilitate employee contributions to Individual Retirement Accounts.
But businesses can also establish their own employee retirement plan, such as a 401(k) or SIMPLE IRA, or SIMPLE 401(k) to satisfy this requirement.
How will the program work for my employees?
- Contributions to their account will occur automatically from each paycheck.
- The default savings rate is 5% and an automatic increase feature that will increase their contributions by 1% each year, until it reaches 8%.
- The first $1,000 of contributions will be invested into the CalSavers Money Market Fund.
- Employees can customize their account and choose alternative savings rates and investments.
- An asset-based fee will be applied to their account to cover administrative expenses and the operating expenses of the underlying investment funds.
- Depending on their investment options, the fees will range from 0.825% to 0.95%. This means they will pay between 83 cents and 95 cents per year for every $100 in their account.
- Employees can opt out or back into the program at any time. If they leave their job, they can take the money with them or leave it in the account.
When do employers have to register for the CalSavers program?
The final deadlines for employers to implement the program are as follows:
|Size of Business||Deadline|
|Over 50 employees||June 30, 2021|
|5 or more employees||June 30, 2022|
Want to see more frequently asked questions about the CalSavers program?
Download our free program guide today.
Now is the time for you to have a conversation with a financial professional regarding this program and what it means for your business. They can help guide you through your options and help you decide what’s best for you and your employees.
Not sure if CalSavers or a 401k is right for your company?
RP-522-0321 Tracking #1-05126880 (Exp. 3/23)
This material was prepared by LPL Financial, LLC.
For plan sponsor use only – not for use with participants or use with the general public.