CalSavers 2025: What Employers Must Know to Stay Compliant
What’s changed for 2025 with CalSavers?
As of December 31, 2024, all employers who have five or more employees were required to enroll in CalSavers. Employers who have one to four employees in 2025 will be required to enroll in CalSavers by December 31, 2025.
To enroll employees in CalSavers, an employer must first register their company with the program, then provide a roster of eligible employees' information to CalSavers, which will then directly contact each employee to notify them about the program and allow them to set up their account, with the option to opt out if they choose; employers are also responsible for submitting employee contributions to CalSavers for participating employees. Employees are automatically opted in at a 5% savings (after taxes) unless they log in and opt out. The CalSavers Board has the option to implement an annual automatic escalation of employee contributions not to exceed 8 percent of salary.
Employers who do not comply with the CalSavers Retirement Savings Program may face fines of up to $750 per employee in the first year. The fines are issued by the Franchise Tax Board.
The first notice penalties for noncompliance are $250 per employee. Final notice penalties for noncompliance are $500 per employee and an additional $500 penalty per employee may be issued annually until compliance is met. Employers may not discourage employees from opting in.
The purpose of the CalSavers mandate (SB-1126) is to have businesses run the program and for their employees to start saving money for retirement. If you are an employer, you can expect increased costs for payroll services because additional filing essentially doubles the time it takes to provide the service. Note that the contributor’s account is a Roth individual retirement account (IRA), which is made on an after-tax basis-in other words, with dollars they’ve already paid taxes on.
Generally, contributing to a Roth account makes the most sense if it is believed that the tax rate employees will pay today will be lower than the tax rate when they retire. CalSavers does not offer contributions to Traditional IRAs as there is no incentive for a government agency to assist in lowering payroll taxes. For some employees, using a Traditional IRA is a better vehicle for retirement savings as it reduces taxable income in the current year and defers taxation until the money is drawn out.
About CalSavers
CalSavers is California's state-sponsored retirement savings program designed to provide workers without access to an employer-sponsored retirement plan a simple and portable way to save for their future. The program facilitates automatic payroll deductions into a Roth Individual Retirement Account (IRA) owned by the employee. Employers with five or more employees are required to register for CalSavers, while those with fewer employees have until December 31, 2025, to comply. Employees are automatically enrolled at a 5% contribution rate but can adjust their rate or opt out at any time. Employers are responsible for facilitating the program but do not contribute to the accounts. Non-compliance may result in financial penalties. More info about saver.calsavers.com
A special thanks to board member Cheryl Taylor for sharing this important update on CalSavers. As a seasoned professional and trusted Lincoln local, Cheryl has years of experience helping businesses navigate financial complexities, from managing books to optimizing cash flow. Her expertise and dedication to supporting local businesses make her an invaluable resource for those looking to stay compliant and financially secure. For personalized guidance and expert accounting support, connect with Cheryl through her website: cherylscloudaccounting.com/contact.
