In my practice, I advise businesses on the complex landscape of retirement benefits, and few topics have generated as many questions in recent years as the California Secure Choice Retirement Savings Program, now officially known as CalSavers. This state-mandated program represents a significant shift in retirement policy, designed to address the alarming coverage gap among private-sector workers. Understanding the CA Secure Choice Retirement Plan requirements is not just a matter of legal compliance for employers; it is a crucial step in understanding a new benefit that will impact millions of California employees. The program’s requirements create a clear obligation for employers and a automatic, though optional, savings path for workers.
The core mandate of the CA Secure Choice Retirement Plan requirements is straightforward: if you are an employer in California with five or more employees and you do not already sponsor a qualified retirement plan (such as a 401(k), SIMPLE IRA, or SEP IRA), you are required to facilitate the CalSavers program for your workforce. This is not a traditional employer-sponsored plan. The employer’s role is purely administrative; they are not responsible for selecting investments, managing the plan, contributing employer funds, or assuming any fiduciary liability. Their obligation is to register with CalSavers, provide employee information, and facilitate payroll deductions. The program itself is a state-sponsored Roth IRA, which means all contributions are made on an after-tax basis for the employee.
The Employer Requirements: A Step-by-Step Compliance Checklist
The CA Secure Choice Retirement Plan requirements for employers are primarily about process and deadlines. Failure to comply can result in penalties, so meticulous attention to registration timelines is essential.
1. Eligibility and Registration Deadline:
The requirement to register is based on the size of your workforce. California rolled out the mandate in phases based on employer size:
- 100 or more employees: Registration deadline was November 30, 2020.
- 50 or more employees: Registration deadline was June 30, 2021.
- 5 or more employees: Registration deadline was June 30, 2022.
New employers with five or more employees must register within 30 days of reaching that employee count.
2. The Facilitation Process, Not Sponsorship:
The employer’s duties are clearly defined and administrative in nature. They must:
- Register their business on the CalSavers online portal.
- Submit a roster of eligible employees (all employees aged 18+).
- Set up and process payroll deductions for employees who choose to participate (or who are automatically enrolled).
- Remit deducted contributions to CalSavers on the designated schedule.
- Manage employee status changes (new hires, terminations) through the portal.
3. Key Employer Protections:
Critically, the CA Secure Choice Retirement Plan requirements explicitly shield employers from key liabilities:
- No Fiduciary Duty: Employers are not fiduciaries to the plan. They are not responsible for investment decisions or the program’s performance.
- No Employer Contributions: Employers are strictly prohibited from making contributions to employees’ CalSavers accounts. This is a key differentiator from a 401(k) plan.
- No Plan Liability: The employer has no liability for the program’s administration, design, or investment outcomes.
The Employee Experience: How the Program Works
For employees, the CA Secure Choice Retirement Plan requirements create an “opt-out” system rather than an “opt-in” one, a design feature proven to dramatically increase participation rates.
1. Automatic Enrollment and Default Settings:
Eligible employees (age 18 and over) are automatically enrolled at a default contribution rate of 5% of gross pay. This contribution is deducted from their post-tax earnings and deposited into a Roth IRA within CalSavers.
- Default Investment: Contributions are invested in a target-date fund (TDF) based on the employee’s age. The TDF automatically adjusts its asset allocation to become more conservative as the target retirement year approaches.
- Contribution Escalation: The default savings rate automatically increases by 1% each year until it reaches 8%, unless the employee opts out of the increase.
2. Employee Choice and Control:
Employees have full control and can, at any time:
- Opt-out entirely during the initial 30-day notice period or any time after.
- Change their contribution rate (from 0% to any percentage of pay, up to the annual IRA limits).
- Select a different investment from the available options, which include several risk-based funds in addition to the target-date series.
- Stop and restart contributions.
3. Portability and Ownership:
A core benefit for the employee is that the CalSavers account is their own. It is not tied to their employer. If they change jobs, their account moves with them. They can continue to manage it as an individual IRA, and their new employer (if it is a facilitating California employer) can resume sending contributions to the same account.
Financial and Administrative Implications
From a financial perspective, the program’s impact is asymmetrical between employer and employee.
For the Employer:
- Cost: The primary cost is administrative—the staff time required to set up the payroll integration and manage ongoing deductions and reporting. There are no direct fees paid by the employer to CalSavers.
- Payroll Impact: The employer must treat the Roth IRA deductions like any other payroll deduction (e.g., health insurance), ensuring accurate and timely remittance.
For the Employee:
- Cost: CalSavers charges an annual program fee of approximately 0.825% to 0.95% of assets under management. This covers all administrative and investment management fees. While higher than a low-cost ETF in a personal brokerage account, it is competitive for a small-balance, automatically-managed IRA.
- Tax Treatment: All contributions are made on a Roth (after-tax) basis. This means qualified withdrawals in retirement are 100% tax-free. This can be a significant advantage for young workers or those in lower tax brackets who expect to be in a higher tax bracket in retirement.
The Strategic Alternative for Employers
The CA Secure Choice Retirement Plan requirements are triggered by the absence of a qualified employer-sponsored plan. For many businesses, especially those that value the ability to attract and retain talent with a competitive benefits package, facilitating CalSavers may not be the optimal choice.
The strategic alternative is to establish a traditional retirement plan, such as:
- 401(k) Plan: Offers higher contribution limits (\text{\$23,000} + \text{\$7,500} catch-up in 2024 vs. IRA limits of \text{\$7,000} + \text{\$1,000}), allows for employer contributions (matching or profit-sharing), and provides greater flexibility and control over investment options and plan design.
- SIMPLE IRA: A lower-cost, easier-to-administer option for small businesses (100 or fewer employees) that requires employer contributions.
Choosing to sponsor a private plan exempts the employer from the CalSavers mandate entirely. The decision often comes down to a cost-benefit analysis: does the value of offering a superior plan with employer contributions outweigh the administrative burden and cost compared to the simple, no-cost facilitation of CalSavers?
In conclusion, the CA Secure Choice Retirement Plan requirements have created a new layer of retirement plan compliance for California businesses. For employers, it is a mandate to act—either by registering for CalSavers or by choosing a private plan. For employees, it is a powerful, automatic mechanism to start building retirement savings, offering a simple, portable, and professionally managed account where none existed before. Understanding these requirements is the first step toward navigating this new landscape effectively.
