There is a new California government retirement plan called CalSavers. CalSavers have been sending out attention grabber emails from what appears to be email addresses obtained through the California Employment Development Department. The idea of the program is to provide ease of access without the administrative complexity, fees, or fiduciary responsibility of existing options for employers. CalSavers is chaired by the CA State Treasurer and operated solely through administrative fees, so there is no cost to taxpayers.
New Requirements for Employers
Any employer with at least five employees that does not already offer a workplace retirement savings plan will be required to either begin offering one via the private market or provide their employees access to CalSavers. Although there is no need to wait, employers can register and start this program at any time, they will be required to comply by the following deadlines:
Size of Business Deadline
Over 100 employees June 30, 2020
Over 50 employees June 30, 2021
Five or more employees June 30, 2022
Employers play a limited role in CalSavers; they simply need to register, sign up employees and submit participating employees’ contributions through a payroll deduction. Employers cannot make contributions to employee accounts.
To register, employers will need their Federal Employer Identification Number, CA Employer Payroll Tax Account Number from Employment Development Department, and CalSavers access code from notification. If employer already has a retirement plan set in place for employees, they can certify their exemption for their company on the CalSavers website.
Once a company is registered, all employees must be added to program within 30 days. After employees have been added, the employee will have 30 days to customize their account or opt out of the program. If employee takes no action, they are automatically enrolled and 5% of their gross pay will be contributed to a Roth IRA account using standard investments (of which the employee has control). The employee can go in at any time and modify what percentage is contributed and add whom they would like to assign as a beneficiary. An employee can opt in or out of their account at any time and has access to their savings at any time.
CalSavers retirement plan has an automatic annual increase of 1% each year until reaching 8% annually to maximize savings benefits over time (unless changed otherwise).
Annual Cap
Since the CalSavers retirement plan is a Roth IRA, the savings amount is subject to limits set by the federal government. In 2019, the contribution limit is $6,000/year ($7,000/year if age 50 or over) if employee earns at least $6,000 in wages.
As a single filer, younger than 50, with a modified adjusted gross income (MAGI) less than $122,000, employee can contribute the full amount of $6,000. If income is between $122,000 and $137,000, employee can submit a partial contribution using the equation of ($137,000-MAGI) / $15,000 x $6,000 to determine the maximum amount that can be contributed. If the MAGI is over $137,000, then no contributions can be made.
As a married filing separately filer, whether under or over 50 years old, with a MAGI over $10,000, employee is not eligible to contribute. If MAGI is under $10,000, employee can contribute a partial amount using the equation of ($10,000-MAGI) / $10,000 x $6,000 if under the age of 50 or x $7,000 if over the age of 50.
As a married filing jointly filer, younger than 50, with a combined MAGI less than $193,000, employee can contribute the full amount of $6,000. If combined income is between $193,000 and $203,000, employee can submit a partial contribution using the equation of ($203,000-MAGI) / $10,000 x $6,000 to determine the maximum amount that can be contributed. If the combined MAGI is over $203,000, then no contributions can be made.
As a married filing jointly filer, 50 years or older, the requirements are the same except that employee can contribute $7,000 versus $6,000.
If employee has other Roth or Traditional IRA accounts, the amount that can be contributed is reduced by the contributions made to the other accounts.
If CalSavers is not offered by an employer, individuals can sign up on their own. You are eligible to open an account if you are 18 or older, employed in the state of CA, and have a Social Security Card or Individual Taxpayer Identification Number.