Understanding CalSavers: What California employers need to know
Small businesses have long faced challenges in offering retirement benefits to employees. To address this, California introduced CalSavers, a state-run retirement savings program designed to provide employees with a way to save for their future. Recently, California expanded the mandate to include small business owners with 1-4 employees, requiring them to register for a retirement plan by December 31, 2025.
While CalSavers helps businesses comply with state mandates, it is important for employers to explore all their options, including alternative retirement plans like SIMPLE IRAs, to find the best fit for their business and employees.
What is the CalSavers Retirement Savings Program?
CalSavers is a state-facilitated retirement plan aimed at increasing employees' access to retirement savings across California. It was created to address the growing retirement savings crisis and requires eligible businesses to either enroll in the state-sponsored program or establish their own qualifying retirement plan.
Which Businesses Must Participate?
Employers in California with at least one employee who is not the business owner must comply with the mandate unless they already sponsor a qualified retirement plan. Sole proprietors and self-employed individuals are not required to participate, but they can voluntarily enroll. Deadlines for registration vary based on business size:
- Businesses with 5+ employees – Already required to comply
- Businesses with 1–4 employees – Must register by December 31, 2025
Employees who do not work for a participating employer can sign up individually and make contributions through automated deductions from their bank accounts.
How Does CalSavers Work?
For businesses that do not already offer retirement benefits, CalSavers provides a simple way to facilitate employee savings through payroll deductions. Employers are only responsible for enrolling employees and processing deductions; they do not contribute to the program or pay administrative fees. The key features include:
- Employees are automatically enrolled after 30 days unless they opt-out.
- The default savings rate is 5% of gross pay, with the option to adjust contributions.
- Annual auto-escalation of 1%, up to a maximum of 8%.
- Employees can take their savings with them when they change jobs.
- Employers cannot contribute to employee accounts.
Is Participation Mandatory?
Under SB-1126, California businesses with five or more employees have been legally required to offer a retirement plan since June 30, 2022. Recently, the state expanded this mandate to include businesses with 1-4 employees, requiring them to register for a retirement plan by December 31, 2025. Eligible companies that do not comply will face penalties:
- $250 per eligible employee if noncompliance continues for 90 days after notice.
- $500 per eligible employee if noncompliance persists for 180 days or more.
Comparing CalSavers with Other Retirement Plans
CalSavers, a state-run retirement savings program, fulfills this requirement, but it is not the only option. Employers can choose to enroll in a qualified retirement plan, such as a SIMPLE IRA, SEP IRA, 401(k), or another private plan that meets state guidelines.
How WealthRabbit Simplifies Retirement Savings
For businesses seeking an alternative to CalSavers, WealthRabbit simplifies the setup and management of SEP and SIMPLE IRAs. Many small businesses hesitate to offer retirement plans due to administrative complexities, but Wealthrabbit eliminates those challenges, making it easy to set up and manage an IRA.
- Easy Setup – Follow simple step-by-step instructions or let our experts handle the setup for you.
- Employee Portal – Employees can easily manage their retirement accounts and stay on top of their savings.
- Intuitive Dashboard – Track employee contributions and monitor retirement plans with ease.
- Scheduled Contributions – Automate deposits so you never miss a contribution, even off-cycle.
- Portfolio Management – Give employees access to professionally designed investment portfolios.
- Smart Rebalancing – Keep investments aligned with long-term financial goals.
While CalSavers ensures compliance, WealthRabbit empowers businesses with flexible and tax-efficient retirement solutions that support long-term financial security. Explore how a SEP or SIMPLE IRA with WealthRabbit can benefit your business today!
