What Is CalSavers?
CalSavers is a mandatory retirement program for both for-profit and non-profit California employers. The program was created by the California Legislature and began operating in 2019. Under CalSavers, each employee enrolled in the program is provided a Roth IRA and makes automatic contributions from their paychecks. Employees of enrolled employers are automatically signed up for the CalSavers program unless they opt out. Additionally, CalSavers Roth IRAs are portable and belong to the employees even if they change jobs. Employers incur no fees for enrolling in the program and are not able to make contributions to participating employees. Further, employers do not have any fiduciary liability for the program.
Which Employers Must Enroll in CalSavers?
Under the program, employers that: (1) do not offer an employer-sponsored retirement plan; and (2) have five or more employees must enroll in the CalSavers program. However, the deadline for employers to set up a retirement plan or join CalSavers varies depending on the size of the employer. Employers with more than 100 employees had to comply with CalSavers by September 30, 2020. Employers with more than fifty employees have until June 30, 2021 to comply. The deadline for employers with five or more employees is June 30, 2022. Employers of all sizes may enroll in CalSavers before their deadlines.
What Are Employers’ Obligations Under CalSavers?
To enroll in CalSavers, employers must first register through the CalSavers website and provide employee roster information. Thereafter, employers have the continuing obligation to provide CalSavers with roster information for new employees within 30 days of hiring.
Additionally, employers must make deductions for employees’ IRA contributions every pay period. Employers must then remit the employee contributions to the CalSavers program administrator within seven business days of the deduction.
Employers registered with CalSavers must remain neutral about whether their employees participate in CalSavers and may not require, encourage, discourage, or prohibit participation in the program. Moreover, if an employee asks an employer about CalSavers, the employer should not provide advice and should instead direct the employee to contact CalSavers.
Further, employers that already have or will establish their own retirement plan must certify their exemption from the CalSavers program on the CalSavers website.
Are There Penalties for Noncompliance?
Employers who are required to join CalSavers but do not are subject to penalties if they do not have good cause for not joining. Penalties range from $250 to $500 per employee.
Have There Been Any Legal Challenges to CalSavers?
A legal challenge was brought against CalSavers on the basis the program was preempted by federal law. The Employee Retirement Income Security Act (“ERISA”), the federal law in question, preempts any state law that relates to any employee benefit plan. A judge in the United States District Court for the Eastern District of California ruled that ERISA did not preempt CalSavers. On appeal, the United States Court of Appeals for the Ninth Circuit agreed and ruled that CalSavers was not preempted on May 6, 2021. More specifically, the Ninth Circuit held CalSavers did not fall within ERISA’s preemption because CalSavers is established and maintained by the State of California, not employers.
California is part of a growing list of states that have implemented state-facilitated retirement savings programs. Accordingly, the Ninth Circuit’s decision is likely not the end of ERISA preemption litigation. In the meantime, California employers must comply with CalSavers’ requirements by either enrolling and remitting deductions or certifying their exemption.
In sum, while there is no cost to joining CalSavers, employers must comply with the additional requirements of enrolling in or opting out of the program.
The experienced attorneys at Palmer Kazanjian Wohl Hodson LLP are available to assist employers regarding the CalSavers program and any effects on their businesses.
This article was prepared in conjunction with The Cicotte Law Firm, LLC.