The United States Supreme Court is considering whether to hear an appeal from United States Court of Appeals for the Ninth Circuit, dismissing a case brought by the Howard Jarvis Taxpayers Association claiming that CalSavers, California’s mandated payroll deduction IRA program, is preempted by ERISA (See Happy New Year! Supreme Court Expected To Be Busy With ERISA Again In 2022). In the meantime, the CalSavers program continues as state law. On Janurary 12, the CalSavers Retirement Savings Board issued a press release stating that it will begin levying penalties, this month, on those employers failing to register with CalSavers by their deadline of September 30, 2020. Employers with more than 100 employees not offering a retirement program to their employees were required to register by that date. The original deadline was June 30, 2020 but it was extended due to the Coronavirus. The penalty is $250 per employee (meaning the minimum would be $25,250 for 101 employees) and will be levied in partnership with the California Franchise Tax Board. Once receiving the first notice of penalties, if the employer doesn’t comply within 90 days the penalty increases another $500 (for at total of $750, or $75,750 minimum) per employee. The release says that the program has sent dozens of notifications by letter and email since it launched three years ago. It urges employers to comply now before receiving the notice of penalties and states service representatives are standing by to assist employers.
Threshold Drops. Importantly, the threshold number of employees, requiring employers to register with CalSavers if not offering a retirement plan, dropped from over 100 to over 50 with a deadline to register of June 30, 2021. Additionally, employers with 5 or more employees and no plan must register by June 30, 2022 to avoid penalties.
Registering involves employers providing CalSavers with contact information for their employees so that CalSavers can contact them about enrolling. Unless the employee opts out or changes the contribution amount, employers must withhold 5% of pay from all enrolled employees and pay it over to CalSavers. The CalSavers program then invests the contributions in Roth IRAs for each employee. The employee can opt out of a Roth IRA for a traditional IRA.
Consider Options. Because CalSavers is IRA based, the amount that can be saved by employees is much lower than in a private qualified plan such as a 401(k) plan (See Inflation Adjusted Plan Limits Reiterate Advantages of Employer Plan Over CalSAVERS. Employers with more than 5 employees that don’t currently provide a retirement plan should consult with an employee benefits attorney or other professional to compare adopting a private plan over registering for CalSavers. Please contact us with questions and look for our upcoming seminar/webinar on the subject.