CalSavers, a California run retirement program, is designed to give employees and contractors the ability to set aside a percentage of their wages toward retirement if their employer does not offer a 401K or other retirement plans. The CalSavers statute is set by California Government Code §§ 100000-100050, with the new regulations codified as California Code of Regulations §§ 10000-10007. This article attempts to explain how CalSavers works and how it will affect California business owners by answering key questions.

What are the Deadlines?

Employers of five (5) employees or more must provide either a retirement plan or register for CalSavers. Here are the deadlines to keep in mind:

• Employers of more than 100 employees should have complied by June 30, 2020.
• Employers of over 50 employees will need to comply by June 30, 2021.
• Employers with 5 employees or more must offer a plan or register by June 30, 2022.

What Counts as a Qualifying Retirement Plan That Exempts a Business from CalSavers Registration?

Companies that already offer employees the opportunity to contribute to a 401K, or other similar retirement plans, do not need to enroll in CalSavers. Qualifying retirement plans include, e.g., defined benefit plans, 401Ks, SEP plans (Simplified Employee Pension), and SIMPLE plans (Savings Incentive Match Plan for Employees), and those that offer automatic deductions from IRAs. Cal. Gov. Code §§ 100000(d)(3), 100032(g).

If your business offers a retirement plan to some, but not all, employees, your plan still exempts your company from CalSavers. This assumes, of course, that the employees excluded from the retirement program are not being left out for a legally impermissible reason, such as race or gender discrimination. Because such companies are exempt, they cannot choose to register for CalSavers for those employees not covered by the companies’ retirement plan. However, they may forward contributions of employees who have separately registered for CalSavers.

Are There Any Other Exemptions?

Yes. Those not eligible for CalSavers include employees covered by the federal Railway Labor Act and employees “engaged in interstate commerce so as not to be subject to the legislative powers of the state.” Employees whose employers contribute to a pension trust fund under the Taft-Hartley Act are also ineligible for CalSavers. Cal. Gov. Code § 100000(c)(2)(A)-(B).

Must Businesses Register for CalSavers for Their Independent Contractors or Employees Hired Through a Staffing Agency?

Businesses do not need to register their independent contractors. Contractors and those self-employed may register on their own.

In the case of staffing agencies, the CalSavers regulations provide for this as a so-called “Tri-Party Employment Relationship.” This type of relationship occurs when an employer contracts with a third party agency for employees or for payroll services, human resources, or regulatory compliance. Cal. Code Regs. § 10000(y). Whether the agency or the company hiring the agency is responsible for enrolling agency hires in CalSavers depends on the circumstances.

A PEO (Professional Employer Organization) is a business that a company hires to take on the company’s entire hiring, labor, and employment division. A true PEO handles a company’s labor, taking on the associated legal risks, to free a company to focus on the products or services it provides. However, under CalSavers regulations, the company itself – not the PEO – is responsible for enrolling the workforce in CalSavers. Cal. Code Regs. § 10001(e)(2).  

If, however, a company contracts with a temporary agency or a “leasing employer,” the third-party agency is responsible for registration and enrollment in CalSavers. Id. § 10001(e)(1).

Can Employers Register for CalSavers Voluntarily If They Already Have a Retirement Plan or Are Otherwise Exempt?

No. Under Cal. Code Regs. § 10002(d), “exempt employers are prohibited” from participating in the CalSavers program. However, CalSavers retirement accounts are meant to be portable – employees may take their accounts with them as they change jobs. So it is likely that employees with CalSavers administered retirement accounts may join businesses that are not CalSavers “eligible employers.” Consequently, an employer may assist the employee by withholding his or her CalSavers contributions, even though the employer is not eligible to register employees with CalSavers.

What If the Company’s Number of Employees Fluctuate?

If the needs of your business change from year to year, or even month to month, or you employ large numbers of seasonal workers, the number of your employees for CalSavers purposes will be an average. Specifically, it is the average of the number reported to EDD “for the quarter ending December 31 and the previous three quarters of available data from the reports.” Cal. Code Regs § 10001(a).

So, even if your business sometimes has less than 50 employees, and, at other times, may have 100 or more, your compliance date will be based on this averaging method.

Do Employers Have Exposure to Liability for Administering CalSavers?

No. The CalSavers laws shield employers from liability associated with administering the plan since CalSavers is a state-administered program. Likewise, CalSavers protects employers from liability from:

• The investing decisions of employees (§ 100034(a));
• The program design and administration of CalSavers (§ 100034(b));
• The investments, investment performance, and investment returns of CalSavers; and
• The benefits paid to program participants.

The only liability employers face under the laws as written is for non-compliance. Employers subject to CalSavers who fail to comply and register to allow their employees to participate, without “good cause,” may be penalized. This penalty is triggered 90 days after service of a notice of non-compliance and is $250 per eligible employee. If the employer fails to comply after 180 days, the penalty goes up to $500 per eligible employee. California Unemployment Code Section 1088.9(b).

How Can Employers Comply?

The final question is how an employer should go about registering its employees for CalSavers? CalSavers has a program website, where employers sign up, request an access code, and then, may begin entering employee information. Employers need the subsequent information for all eligible employees within 30 days: names, Social Security Numbers (or Tax IDs), dates of birth, mailing addresses, phone numbers (if available), and email addresses (if available). Cal. Code Regs. § 10003(a).

Head over to the California State Treasurer’s website for more information on the proposed modifications to regulations and other up-to-date information. If you need assistance navigating these CalSavers requirements, contact Hackler Flynn and Associates.

DISCLAIMER: Content within this post should not be considered legal advice and is for informational purposes only. Communications made through this post do not create an attorney-client relationship. Hackler Flynn & Associates is not responsible for any content that you may access from third-party resources that may be accessed through or linked to this post. Hackler Flynn & Associates is only licensed to practice in California.