May 2 kicked off National Small Business Week, which celebrates the role small businesses and entrepreneurs have in building our country’s economy. According to the Small Business Administration, “more than half of Americans either own or work for a small business,” which certainly puts things into perspective considering the impact COVID-19 had on small businesses across the country. As we continue the recovery phase as a nation, the resources and spotlight National Small Business Week offers are valuable in helping small business owners prepare and innovate for the future.
One of the significant outcomes of the pandemic for employers and employees was the importance of having an emergency savings fund and long-term retirement plan in place. In California, CalSavers is an opportunity that makes it simple and accessible for self-employed individuals and small business employees to begin investing in a retirement savings plan. If you’re a business owner and do not currently provide a workplace savings plan for your employees, you may be interested in the program overview we share below as well as a critical deadline to mark on your calendar.
What Is the CalSavers Program?
CalSavers is a state-mandated automatic Roth IRA program. California employers with five or more W-2 employees must enroll their employees in the program if they do not already offer a workplace savings plan. Here is some key information about the program for employers and employees:
- There are no fees or employer-match contributions for employers, but there are penalties for non-compliance.
- Employers that have employer-sponsored retirement plans for their employees are exempt from CalSavers. These retirement plans include profit-sharing plans, 401(k) plans, pension plans, 403(a) and 403(b) plans, arrangements under Section 457(b), Simplified Employer Plans (SEPs), SIMPLE Plans, and payroll deduction IRAs, as well as union multiemployer pension plans.
- While government employers are exempt from CalSavers, non-profit employers must comply.
- Employers may need to register their exemption if they do not voluntarily register for the program.
- Employees are automatically enrolled following 30 days of registration at a 5% savings rate. The savings rate will automatically increase by 1% each year until reaching 8% unless adjusted by the employee.
- The program is voluntary; employees may choose a different contribution rate, elect-out of auto-rate escalation, or opt-out of the program altogether.
- Employees are responsible for managing their account, including:
- Monitoring annual Roth IRA contribution limits (2021 limits of $6,000 or $7,000 for age 50 or older)
- Estimating fees associated with their investment selections
- Re-enrolling or opting out during the Open Enrollment period
- The retirement account is owned by the employee and portable, even when an employee leaves their current workplace.
Deadline to Remember
Deadlines are based on an employer’s number of W-2 employees. The most rapidly approaching deadline is for businesses with 50 to 100 employees.
June 30, 2021: Employers with 50 to 100 employees must enroll in CalSavers or register their exemption if they already provide an employer-sponsored retirement plan. Employers can take action anytime before this deadline.
Penalties: Employers may face financial penalties each year for not complying. After 90 days of non-compliance, fines are $250 per eligible employee and increase to $500 per eligible employee after 180 days.
If you’re a California employer, we recommend you consult with your CPA and business consultant. They can help you determine if you’re exempt from participating in CalSavers, or assist you with enrolling in the program or starting your own company plan. CCMI can also refer you to a third-party administrator who can help review your options and determine what retirement plan might be best for your business. It can take some time to set up a new employer savings plan, so we encourage you to plan according to the CalSaver deadlines and contact CCMI if you would like to learn more.
How CCMI Serves Business Owners
Small businesses are the backbone of our local communities and economy, and we’re committed to being a resource that supports their growth and sustained success. We can help your business in several ways, including:
- Designing tax-advantaged action plans to meet your goals and reduce your tax liability
- Managing your evolving insurance needs as your assets grow
- Drafting succession, estate, and business continuity plans alongside your team of professionals
Learn more about how CCMI helps entrepreneurs throughout the various stages of the business owner’s lifecycle.
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
How can we help you?