CalSavers Program (Roth IRA)

Katie Selenski

CalSavers Program (Roth IRA)

Source of information: CalSavers Program

“Nearly half of Californians are on a trajectory to retire in economic hardship,” says Katie Selenski, Executive Director of CalSavers.

CalSavers will offer millions of workers an automatic way to save for their retirement. CalSavers aims to help “workers in the private sector who don’t have access to a retirement plan at work,” Selenski says.

Employers with five or more workers will be required to register with CalSavers – as a means to promote putting a cut of workers’ paychecks into Roth IRA’s – if they don’t already give their employees a way to save and invest for retirement.

What Employers and Employees Need to Know.

CalSavers is a new state program in which workers can automatically enroll in an individual retirement plan to save if their employers do not provide a retirement plan. Workers can opt-out of the program at any time. This program is meant for all employees (short-term and part-time included ) to help save for their retirement. “When people have access to automatic enrollment in a workplace retirement plan, they’re 15 times more likely to save,” Katie Selenski says.

“One of the big drivers of our retirement and security problems in the state is that so many millions of Californians don’t have access to an easy workplace plan where they can just set it and forget it.”

Three common causes of why employers haven’t been offering retirement plans are cost, administrative burden, and the fiduciary obligation that comes along with sponsoring a retirement plan. Selenski says.

CalSavers approaches these matters for both the workers and employers and is even free for employers. Selenski states that “We have made it as easy as possible for them to facilitate their employees’ payroll deductions,” and “are not the plan sponsor, so they don’t have the fiduciary liability.”

Deadlines for businesses that should sign up.

  1. Businesses that have more than 100 employees must register with CalSavers by September. 30, 2020.
  2. Businesses with 51 to 100 employees have until June 30, 2021, to register.
  3. Businesses with only 5 to 50 employees have until the following year June 30, 2022.

If your company currently sponsors a retirement plan or employs fewer than five employees, your company will not have to sign up with CalSavers.

Take note that, according to the CalSavers website, businesses that have failed to register, will receive notice from the State of California and should the State deem the business to not present a good reason to opt-out of the program or have not signed up within 90 days of receiving the notice, may then be subject to financial penalties.

For employers

  • Registering your business takes just a few minutes
  • Employers serve a limited role: facilitate the program by adding employees and submit participating employees’  contributions via simple payroll deduction.
  • There are NO FEES for employers.
  • CalSavers provides you with tips, templates, and support so that your business can focus on business as usual.
  • Employers cannot make contributions to employee accounts.
  • More Employer Resources

For employees

  • Their CalSavers account is a Roth IRA (after-tax).
  • The default savings rate is 5% of gross pay, and they can change their rate at any time.
  • They will be auto-enrolled after 30 days if they do not opt-out and will begin saving through payroll contributions.
  • They can opt-out and back in at any-time.
  • Their account is portable. It stays with employees even if they leave your workplace.

Businesses that do not opt-out of the program will be enrolled at a default setting of 5% of gross pay. This money is taxable, is taken out of the employee’s pay and deposited into the retirement savings account. CalSavers’s program has an automatic feature that increases the savings rate by 1% annually until it reaches an 8% savings rate unless the employee decides differently.

Several investment options are varying within the CalSavers program to be selected from for employees to manage their savings and how they want to contribute to their retirement plan. Employees that have more than one job can be enrolled in CalSavers through each employer and can contribute through both jobs or choose to opt-out as they wish.

This retirement account is a Roth IRA, and the Internal Revenue Service has rules restricting the amount of money allowed to be contributed to such accounts yearly. Those rules can be found here on the IRS site. CalSavers’s purpose is to provide Californian workers access to a retirement savings plan, but Selenski acknowledges businesses may want to offer private plans to their workers instead.