Under California state law, most businesses need to either register for CalSavers, the state-sponsored retirement plan, or offer an employer-sponsored retirement plan, such as a 401(k). However, you may not have to provide any retirement plans if your business meets the requirements for a CalSavers exemption.
To help you navigate this process, let's look quickly at what CalSavers is and which businesses can opt out of the plan.
What Is CalSavers?
CalSavers Retirement Savings Program is a state-sponsored retirement plan designed to help Californians save for retirement. It's a Roth IRA (Individual Retirement Account) that’s managed by the state of California. Employers help facilitate the program by signing employees up and sending in payroll contributions.
Are There Penalties If You Don’t Register for CalSavers?
Yes, there are non-compliance penalties of up to $750 per eligible employee if you don’t either file for an exemption or register for Calsavers. Ouch.
First, there’s a $250 fine per eligible employee if you fail to register your company or officially opt out from CalSavers within 90 days of getting your non-compliance notice.
Then, if you still aren’t following the program’s requirements 180 days after you get the initial non-compliance notice, you'll face an additional penalty of $500 per eligible employee.
Note that these fines aren’t recurring, so you won’t keep getting hit with per-employee penalties every month, year, or other time frame while in non-compliance.
Also, keep in mind that there are various ways you can qualify for a Calsavers exemption (see below). But, you have to make sure to actually file for the exemption—and do so in a timely manner—to avoid receiving a non-compliance notice or having to pay the penalty if your notice was already sent.
Do I Qualify for a CalSavers Exemption?
Even though CalSavers is a mandated program, your business might qualify for an exemption based on your size or classification. You can also opt out of the program if you already offer a qualified retirement plan. Let's look at all three possibilities in more detail.
Exemption #1: Business Size
CalSavers is designed with both small and large businesses in mind. However, companies with five or fewer California-based employees are currently considered exempt employers.
Your eligibility here depends on the average number of employees you have on your payroll throughout the year. To calculate this number, the four DE9C filings you sent to the Employment Development Department last year are referenced.
So, if your company size fluctuates because of seasonal employees, reviewing your records is essential. If you have five or fewer employees for the majority of the calendar year, you may still be able to opt out—at least for now.
This exemption isn’t here to stay. California recently expanded the CalSavers program through additional legislation. Starting in January 2023, small businesses with one to four employees are eligible to register, but they won’t be required to do so for another two years.
December 31, 2025 is the registration deadline for these small companies. By that point, pretty much all businesses employing any workers have to register, unless they qualify for a different exemption.
But, if you’re just a company of one—i.e, you’re self-employed and are the only one working in your company, your small size allows you to opt out.
Employee Age
To participate in the CalSavers program, eligible employees must be at least 18 years of age. But, any teenagers you have working for you still count toward your employee total.
So if you have four teens on your payroll and one adult, you’re still required to register since you have five or more employees and at least one is above 18.
Exemption #2: Business Classification
Even if your business has more than five employees, you may still be eligible for an exemption based on your classification. Specific industries are exempt from CalSavers, including religious organizations, tribal entities, or government agencies.
It’s worth noting that under CalSavers, being a nonprofit doesn’t exempt you. You're still required to register and participate in the program unless you meet another exemption. But keep in mind that volunteers aren’t considered employees, so don’t count them when figuring out your company size.
Exemption #3: Qualified Retirement Plan Already Offered
Your company can also opt out if you already offer a qualified retirement savings plan.
Various types of employer-sponsored retirement plans make the cut, including 401(k)s, 403(b)s, and SIMPLE IRAs. You can also offer traditional IRAs (accounts funded with pre-tax dollars) or Roth IRAs (accounts funded with after-tax money).
Here's a more complete list, straight from the FAQs on CalSavers.com:
- 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 your business currently sponsors one of these plans, you can opt out of CalSavers.
Should I Opt Out of CalSavers?
Just because your business qualifies for an exemption, doesn't mean you should automatically opt out of the program. On the contrary, depending on your situation, it might be in your best interest to take advantage of CalSavers and offer retirement savings for your employees.
Here are a few pros and cons to consider:
Pros
- No employer fees
- No employer contributions (uses employee payroll contributions instead)
- Can grant your payroll processor access to minimize your paperwork
- Simple employer registration process
Cons
- Everyone starts at the standard rate of 5% of their pay (though employees can request to contribute more or less)
- Limited investment choices (if employees opt to pick their own, there are only five funds for them to choose from)
- Fewer perks (like matches) that could attract top talent
- Some employees earn too much for a Roth IRA (it’s limited to people earning $153,000 or less or couples with a joint income of $228,000). Employees over this limit can work with CalSavers to either opt out or recharacterize a traditional IRA.
- Administering the program takes some time. After the initial setup, you’ll need to add new employees and send in payroll data to ensure things are up to date. Contributions also need to be sent in a timely manner.
- Non-compliance and missing deadlines can result in steep penalties.
- Employees may be looking for competitive benefits packages that include employer contributions–and CalSavers doesn’t allow you to put money into your team’s plans.
If you’re not sure if opting out is the right path for your business, you should consult a financial advisor or accountant to help you make the best decision for your company.
How to File an Exemption with CalSavers
Does your company qualify for one of the exemptions listed above? Yes? Then know that these aren’t automatically granted, so you’ll need to apply for one. You’ll need to provide proof that your company qualifies, and in some cases, still register for the program while your request is undergoing review.
Here’s a look at the steps needed to file your request.
1) Gather Data
Before you begin, you’ll need to get your company's Federal Employer Identification Number (FEIN) or Tax Identification Number (TIN). You’ll also need your CalSaver's Access Code (which was sent to you by the CalSavers program).
Note: If you no longer have your Access Code (or never received one) you can request a new one. Use the "request" link on the "Getting Started with CalSavers" page.
2) Enter Information Online
Now, you’ll need to enter those two numbers into the online portal. You may also need to submit additional paperwork to support your claim.
The more evidence you have to back up your claim, the better. Any information that confirms you meet one of the opt-out reasons listed above should be included in your application.
3) Wait for a Decision
After you’ve submitted everything, you’ll need to wait to see if your request was approved or denied.
If you’re approved, then you're all set! You aren’t required to do anything else with CalSavers.
Of course, if your request is denied, you'll need to follow the state's instructions and register for the program.
How Does Registering for CalSavers Work?
To register for CalSavers, visit the program’s homepage. From there, use the dropdown menu to select “I need to register my business.”
Then, you register for the program by adding your EIN or TIN and Access Code to the employer portal. Then, you’ll need to enter the contact information of your company’s Account Manager. This is the person who will oversee the program for your business. If you’ll have others help you manage the program you’ll also add their information. These helpers are known as administrators.
Once you’re registered, you have 30 days to add a roster of your employees to the system. Then, you’ll provide basic employee information, like their social security numbers, birthdate, and contact information.
CalSavers then invites each employee to set up their individual account and explains the program details and terms.
This notification starts a 30-day opt-out window for your team. So if your employees don’t want to participate, they need to contact the program directly by phone or on the website. Otherwise, they’ll automatically be enrolled.
Once that 30-day period is over, it’s time for you to start sending the right amount of money out of each employee’s paycheck to their CalSavers accounts. The state’s website has more information on what this process looks like.
You can submit employee contributions manually each month or set up a payroll provider like Hourly as your CalSavers delegate or representative to handle the transfers for you.
You're also responsible for communicating basic information about the program with your employees and letting them know that they’ll be getting enrolled as eligible employees. The CalSavers website has plenty of literature to help California employers with this, including template communications and brochures.
Since you aren't overseeing the retirement plan, you don’t have fiduciary responsibility—meaning you don’t have to answer questions about the program or employee investment options. You just direct your workers to the CalSavers website or have them call CalSavers’ client services at 855-650-6918.
File for an Exemption ASAP
The state of California wants to encourage workers in the private sector to save for retirement, but they understand that some employers may not want to participate in CalSavers. Fortunately, the program allows certain businesses to opt out of the program.
Eligible employers may currently qualify for a CalSavers exemption if they have fewer than five employees, are a religious, tribal, or government agency, or if they already offer their employees a qualified retirement plan.
If you qualify, make sure you've filed the request with the state if opting out makes sense for your business. Otherwise, you could face penalties for non-compliance.
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