Andy McNamara, CFP®

Andy McNamara, CFP®

Andy is a CERTIFIED FINANCIAL PLANNER™ and Associate Wealth Advisor with The Gensler Group.

CalSavers: What is it and Why It’s Important.

We hear the headlines all the time, “10,000 Baby boomers are retiring every day” –but how many of those 10,000 boomers are actually ready for retirement? Every year thousands of Americans begin retirement, but unfortunately many are woefully underprepared and have not saved enough for retirement. Many in Public Policy recognize this trend as unsustainable, especially in a high cost state such as California. So recently several states, including the State of California, have instituted new laws to try to incentivize employers to offer retirement plans and to get employees to save more for retirement- the program in California is called CalSavers.

CalSavers is essentially a state sponsored IRA that makes automatically saving into a retirement plan a breeze. The program touts itself as having low fee investment choices, easy administration for employers, and an opportunity to automatically save for retirement.

Here is what you need to know if you are an employer in California:

If you already offer an employer sponsored plan to your employees, you must register with CalSavers through their “Employer Portal” to inform them that you already offer a retirement plan for your employees.

If you do not currently offer an employer sponsored plan, California employers are required by state law to set up a CalSavers program for their employees.

The savings program officially launched on July 1, 2019 and is set to phase in the mandatory participation over the next few years. So, if you are business owner and do not currently offer a retirement plan for your employees; take a look at these deadlines in regards to enrolling in CalSavers:

June 30, 2020 – Any employer with more than 100 employees

June 30, 2021 – Any employer with more than 50 employees

June 30, 2022 – Any employer with 5 or more employees

If the business is found to be in non-compliance after 90 days from these deadlines, an initial penalty of $250 per employee will be assessed. After 180 days of non-compliance, the penalty is $500/employee.

An important note for employers is that there is no fee to the employer to set up or administer the plan. Also, the contributions are all made by the employee and there is no matching requirement for the employer.

Here is what you need to know if you are an employee in California,

Once your employer is enrolled, an automatic 5% of your pay will be redirected into an Individual Retirement Account on your behalf. This money is after tax and works the same way as a Roth IRA-contributions go in post-tax but are tax free upon withdrawal. As long as you are 18 or older, your employer has more than 5 employees, and they don’t offer a retirement plan, you are eligible. The first $1,000 of contributions will go into a money market fund and then additional contributions will default to a target date retirement fund based on your age. You can customize the systematic contributions by increasing or decreasing the contribution percentage, you can customize your investment options, and if for whatever reason, you do not want to contribute, you do have the option of opting out of your contributions.

Bottom Line,

If you are an employer that doesn’t offer a retirement plan and employ more than 5 people, you can visit CalSavers.com or call (855) 650-6918 to learn more how to enroll your company in the mandatory program.

If you are an employee of a company that doesn’t offer a retirement plan, make sure your company knows about this new program so you can start saving for your future!

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