Beginning on June 30 of this year, most California employers who do not offer an employer-sponsored retirement savings plan will need to register with the California Secure Choice Retirement Savings Program. The new program, referred to as “CalSavers,” is designed to help California employees set aside money for retirement. However, the program does not create any new costs for employers and employees can choose to opt out of the program if they wish.
Three-Year Rollout Period for Employer Registration
The CalSavers program was created by the California Secure Choice Retirement Savings Trust Act. The law requires all businesses with five or more employees (including seasonal and agricultural employers) to either offer an employer-sponsored retirement savings plan or register for CalSavers. The registration requirement for employers will be phased in over a three-year rollout period based on the number of employees. Employers with more than 100 eligible employees must register by June 30, 2020. Employers with more than 50 eligible employees must register by June 30, 2021. Employers with 5 or more eligible employees must register by June 30, 2022.
Employers Who Are Required to Register
Employers with at least five California-based employees, at least one of whom is age eighteen, and who do not sponsor a tax-qualified retirement plan, must register for the program and establish or participate in a payroll deposit retirement savings arrangement.
The registration process is fairly straightforward, involving the provision of basic employee roster information to CalSavers. From there, CalSavers works directly with employees to make them aware of the Program and provide the employee opt-out form.
There is no waiting period to be eligible to participate. However, employee contributions to the Program do not begin until the first payroll following the 30-day notification period. Therefore, depending on the length of employment, some short term employees may not be able to make contributions. Employers need only facilitate the employees’ contributions and are not required to administer the program or incur additional costs related to the program. The State is required to designate an open enrollment period at least once every two years.
Penalty for Non-Compliance
Employers who do not provide an employer-sponsored retirement savings plan are required to register with CalSavers. The penalty for failing to register is $250 per employee, if the employer remains noncompliant 90 days after receiving a notice of noncompliance. The penalty increases to $500 per employee for if the employer remains non-compliant 180 days after receiving a notice of noncompliance.
Employers Not Held Liable for Employees’ Decision
Under the new law, employers cannot be held liable for an employee’s decision to participate in, or opt out of, the Program.
Effect on Seasonal and Agricultural Employees
There is no exclusion or exemption for seasonal or agricultural workers or employees who work for multiple employers. Employees can enroll in the CalSavers program for each employer that they work for. They may choose to opt out of contributions through any employer or contribute through multiple employers at the same time. This does not affect each employer’s obligation to have a payroll deposit retirement savings arrangement in place for all eligible employees (if they do not provide an employer-sponsored retirement savings program as an alternative).
Legal Challenge to CalSavers
A lawsuit has been filed in federal court in California to challenge the CalSavers Program. The lawsuit is Howard Jarvis Taxpayers Association et al v. CA Secure Choice Retirement Savings Program. The lawsuit challenges the law as being pre-empted by the federal Employee Retirement Income Security Act of 1974 (ERISA). The court is currently considering a motion to dismiss the lawsuit, with no word on when it will decide. In the meantime, the Program will continue to roll out in 2020. Look for updates in future E-Blasts.
COUNSEL TO MANAGEMENT:
The Program has a Frequently Asked Questions page, available here. The Program does not directly create any new or additional costs for employers. However, employers who do not offer a sponsored retirement savings plan should be sure to register with the Program before the deadline in order to avoid potential penalties. If you have any questions about whether your company is required to register, contact the employment law experts at The Saqui Law Group, a Division of Dowling Aaron Incorporated.