Retirement Plans for Small Businesses in California

All too often, small businesses in California get stuck on retirement plans. With a focus on daily operations, thinking about retirement gets pushed to the side, but this critical piece of financial planning should not be ignored. Employers can help employees save for retirement, and employees should be thinking to the future and what they will need to retire.

Some of the most common retirement plans for small businesses in California come down to CalSavers or a 401(k). We are here to help employers and employees navigate these options to find something that suits their needs.

What is CalSavers

CalSavers is a retirement savings program for Californians working in the private sector. It is made for workers whose employers do not offer their own retirement plan. It was created in 2016, and operates at no taxpayer expense, with a mission to ensure all Californians have a path to financial security in retirement. CalSavers is for employers with five or more employees, if they do not already have a workplace retirement plan.

As of June 1, 2023 account holders will be charged $18 annually, this is a combination of a combination of a Fixed Account Fee and Annualized Asset-Based Fees.

Additionally, as of July 1, 2023 the Total Annualized Asset-Based Fees will be reduced to a range of 0.325% to 0.49%, this is a fee for the annual costs and expenses for account maintenance and administration including costs associated with each Investment Option.

Find up-to-date information here.

How does CalSavers work?

Through CalSavers, employees contribute to a Roth Individual Retirement Account, or IRA, which belongs to them. That means that if they switch jobs, they can keep their CalSavers account. Employers register and enroll eligible employees but do not contribute to their accounts.

Can employees opt out?

Participation in CalSavers is voluntary, and employees can opt-in or out at any time.

Does CalSavers cost employers?

Employers serve a limited role in CalSavers, facilitating the program and submitting contributions through payroll deduction. As a result, there are no fees for employers.

What types of retirement plans are available?

Through CalSavers, the savings rate increases by one percent each year until it reaches eight percent, by default. Employees can maintain the standard options for saving rates and investments or choose their own. As soon as an employer registers, employees will be automatically enrolled with the standard options if they do not customize within the first 30 days. CalSavers investment plans include Money Market Funds, Target Date Series, one ESG fund, one bond fund, or two stock funds.

What is a 401K

A 401(k) is an employer-sponsored retirement plan. Employers can match some or all of the contributions an employee makes. There are two types of 401(k)s, traditional and Roth.

How do 401(k)s work?

Employees decide how much money they want deducted from their paychecks and deposited into their 401(k) account. Employers may make contributions as well, but this is optional. Employers decide who is eligible, how much and when they can contribute, how the employer will contribute, investment options, and other technical aspects. All of the employer decisions must align with laws, rules, and regulations around 401(k)s.

Can employees opt out?

Employees can decide if they want to participate in the 401(k) plan, and how much they want to contribute.

Do private 401(k)s cost employers?

401(k)s cost an employer a small amount of money, in administrative costs, per-participant charges, and miscellaneous fees. Employers who choose to match or contribute to employee funds will also have to pay for the matching portion.

What types of retirement plans are available?

Employees choose the specific investments in their 401(k) accounts from the options offered by the employer. This may be stock and bond funds, target date funds, guaranteed investment contracts, or a combination of various investments.

CalSavers Private Plan

Should I use CalSavers?

Are employers required to offer CalSavers?

Employers who do not offer an alternative plan, who have more than five employees, must offer CalSavers.

What are the income limits for CalSavers?

The contribution limit for CalSavers is phased out between $204,000 and $214,000 for married, filing jointly. For single filers, it phases out between $129,000 and $144,000.

How much money can be contributed?

Contributions are maxed out at $6,000 per year in 2022, or $7,000 for those over age 50.

Are contributions pre-taxed or after-taxed?

Contributions are made with after-tax dollars.

Are you taxed on withdrawals?

Qualifying withdrawals of contributions and earnings are not subject to income tax.

At what age do you have to take distributions?

Under CalSavers, there is no requirement to take distributions while the account owner is alive.

Should I use a private 401(k) plan?

Are employers required to offer a 401(k) plan?

A 401(k) is an optional type of employer-sponsored plan.

What are the income limits for a private 401(k)?

There are no income limits to participate in a private 401(k).

Are contributions pre-taxed or after-taxed?

This depends on the type of 401(k). A traditional 401(k) has contributions made with pre-tax dollars, while a Roth 401(k) is after-tax dollars.

Are you taxed on withdrawals?

Qualifying withdrawals of contributions and earnings are subject to income tax with a traditional 401(k). A Roth 401(k) does not tax qualifying withdrawals of contributions.

At what age do you have to take distributions?

Distributions must begin no later than age 70 and a half.

What is the Deadline for Businesses to Enroll in CalSavers?

The initial three-year phase rollout deadline to enroll in Calsavers has passed. For any employer that has not met the previous mandated deadlines then they are out of compliance and need to register immediately. If the employer does not, they will face enforcement action which includes financial penalties. 

Employers who have 5 or more employees needed to register by December 31st, 2023 to enroll. 

Employers with 1 to 4 employees as of January 1st 2023 have until December 31st 2025 to register.

More information on deadlines can be found here. 

What will happen if I miss the program adoption deadline?

Employers who miss the deadline or fail to allow employees to participate will receive notice.  They are also subject to enforcement action which may include financial penalties. 

Are there penalties for not enrolling into CalSavers?

Employers who do not give their employees the option to enroll may face penalties of $260 per employee after 90 days of notice. After 180 days of notice, that increases to $500 per employee. Employees will not face the consequences of choosing not to enroll.



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