CalSavers vs. other 401(k) plans
The reality is that state-sponsored plans like CalSavers are better than no plan at all, but they are far from the best option for employers and their employees. Employers can still choose plans with companies like The Ryding Company to enjoy more flexibility and control in their plans.
What is CalSavers?
As of 2021, California has mandated that companies with 50+ employees offer a qualifying retirement savings plan. As of June 30, 2022 that mandate extended to companies with 5+ employees to provide a qualified plan.
CalSavers is California’s state-sponsored retirement savings program offered to private sector workers whose employers do not offer a retirement plan. California created this state-sponsored option for those employees whose employers did not implement one of the many plans available on the private market. CalSavers relies on a Roth IRA and all contribution limits apply.
How does CalSavers compare to The Ryding Company’s plans?
While a CalSavers plan is better than having no plan, it doesn’t stand up to the quality, flexibility, and service levels of plans offered by companies like The Ryding Company.
State-run plans generally lack the flexibility and control businesses expect in a good retirement plan, and CalSavers is no exception as it relies on a Roth IRA, which has a lower contribution limit compared to a 401(k). These limits can impact the overall growth potential of a retirement plan.
It’s also important to consider how different plan types benefit different businesses based on their goals. Experts and administrators who have designed, implemented and administered retirement plans for decades - like our team at The Ryding Company - will set up each unique plan to meet the needs of the plan sponsor. Add to that a higher service level than an out-of-the-box plan and it’s easy to see the value difference between The Ryding Company’s plans and those offered by CalSavers.
Employers need to sponsor a plan immediately
With the California mandates in place and the deadlines to comply already passed as of June 30, 2022, it is imperative that any employers without a plan get one set up as soon as they can.
Failure to have a qualified plan set up will result in penalties for the employer. “Employers who do not fulfill their responsibilities by the specified deadline dates are subject to enforcement action, which will include financial penalties.” - CalSavers website.
What counts as a “Qualified Plan”
State law requires employers to either offer their own retirement plan or register to facilitate CalSavers. If an employer has at least five California-based employees, at least one of whom is age eighteen, they are required to have a qualified plan.
Qualified retirement plans include:
401(a) – Qualified Plan (including profit-sharing plans and defined benefit plans)
401(k) plans (including multiple employer plans or pooled employer plans)
403(a) - Qualified Annuity Plan or 403(b) Tax-Sheltered Annuity Plan
408(k) - Simplified Employee Pension (SEP) plans
408(p) - Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA Plan
Payroll deduction IRAs with automatic enrollment
If it is a new business in 2022 what are the rules?
The deadline is December 31, 2022.
“Newly eligible businesses starting in 2022: In Spring 2022, we (re)assessed employer eligibility based on employee data submitted to the Employment Development Department (EDD) as of December 2021. For these newly eligible businesses, their registration deadline is December 31, 2022.” - CalSavers website.
Do employers need to notify the state of California about their qualified plan?
Yes. If an employer already offers a qualified retirement plan, they need to inform the State of their exemption from CalSaver on the CalSaver Employer Portal (link to the portal here).
Financial advisors should be aware of this and communicate with their clients to use the portal to be exempt.
If an employer doesn’t have a qualified plan what are their options?
They should contact our team here at The Ryding Company. We can tell them what options are available. The most likely scenario is that we will help design a plan that works for their current and future needs, get a plan implemented, and make sure it is administered properly.
Contact us today [link to contact form] or see our Services page for options.
This information is provided as general guidance and may be affected by changes in law or regulation. It is not intended as accounting or legal advice. If you have questions please reach out to our team.
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