CalSavers will apply to more employers

The CalSavers program is a state-administered Roth-like retirement plan available to California employees working for businesses that don’t offer a retirement plan. Employers who already offer a retirement plan to their employees are “exempt” and cannot enroll in the program. But even employers who are exempt are required to register with CalSavers if they’re over the minimum employee threshold.

June 30, 2022, was the deadline for nonexempt employers with five or more California W-2 employees, at least one of whom is at least age 18, to register for the CalSavers program. Nonexempt employers with more than 50 employees and more than 100 employees were already required to register in 2021 and 2020, respectively.

However, the Governor recently signed SB 1126, which requires that eligible employers that have one or more eligible employee and that do not provide a retirement savings program to register with the CalSavers program by December 31, 2025. Sole-proprietors, self-employed individuals, or other business entities that don’t employ any individuals other than the owners of the business are excluded from this new requirement.

The CalSavers program will notify employers via letter of their requirement to register in the program. When the employer registers (or shortly thereafter), they need to enter an employee roster into their CalSavers account, providing basic employee information like name, address, phone number, e-mail address (if available), and external payroll ID (and this is all done on an Excel spreadsheet). The employer will also have to update the roster with information for employees hired after the initial roster is submitted. CalSavers will contact the employees directly about whether the employee will opt out, and if not, what their contribution rate will be.

CalSavers penalties

Employers that fail to comply with the CalSavers program requirements will be subject to a $250 per-employee penalty after receiving a notice of noncompliance from the FTB. The penalty will be increased to $500 per employee if the employer doesn’t comply within 180 days.

The FTB and the CalSavers Retirement Savings Board have already begun issuing penalty notices to midsize to large employers deemed by the CalSavers Retirement Savings Board to be noncompliant with the CalSavers requirements. We believe they’ll be issuing notices to smaller noncompliant employers soon.

CalSavers will determine whether a penalty should be imposed for an employer’s failure to comply with program requirements without good cause. If CalSavers determines the penalty should be imposed, it then refers the case to the FTB, and the FTB is responsible for collecting the penalty.

Common reasons for the penalty notice would be:

Failing to register;

Failing to provide eligible employee information to CalSavers on time;

Failing to provide new eligible employee information to CalSavers on time; and/or

Failing to remit employee contributions.

An employer will first receive a notice of its failure to comply without good cause from the CalSavers program. The employer then has 90 days to come into compliance.

After that 90-day period, the FTB will send the first penalty notice on Form FTB 4230A, which imposes a $250 per-employee penalty. If noncompliance continues for 180 or more days, the FTB will send a final notice on Form FTB 4230B, which increases the penalty by an additional $500 for a total of $750 per-employee. Clearly, these penalties can add up quickly even for small employers.

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