Written by Gabriel Dillard
Golden State companies that do not offer an employer-sponsored retirement plan for employees should come to know the name “CalSavers” in the next several months.
CalSavers is the new state-run retirement savings plan that will officially launch on July 1, 2019. Employers who do not offer their own plans for employees are required to make CalSavers plans available and help facilitate payroll contributions.
Unlike traditional employer-sponsored retirement vehicles, there are no further expenses, liabilities or obligations to the employer, said Katie Selenski, director of the CalSavers program, which is administered under the State Treasurer’s Office.
“It’s simple, easy and free to them,” Selenski said of employers.
The program will actually kick off with a pilot launch starting in January 2019, with the initial marketing push for the program starting this month. The United Way of Fresno and Madera Counties has been tapped to conduct local outreach, with a goal of reaching 1,000 business owners and 100,000 employees during the pilot phase.
Lindsay Callahan, CEO of United Way Fresno and Madera Counties, said the goal of the pilot launch is to test the system and ensure a high-quality experience for everyone involved.
“We don’t want to create an administrative burden by trying to avoid an administrative burden,” Callahan said.
Part of the challenge for Callahan will be finding large local employers that do not already offer employer-sponsored retirement plans. According to estimates from the state Employment Development Department, there are an estimated 4,027 such firms with 5-100 or more employees, covering a total of nearly 90,500 workers.
The push to register companies for CalSavers will be staggered based on size. Firms with 100 or more employees face a deadline of July 2020 to register with CalSavers, followed by July 2021 for companies with 50 or more employees and July 2022 for firms with five or more employees.
Once the CalSavers program fully rolls out by 2022, all employers with five or more workers will either have to offer an employer sponsored plan or allow payroll deductions for an employee to participate in CalSavers.
Employees will be automatically enrolled in the CalSavers program, and must opt-out within 30 days of launch if they don’t want to participate. Employees who do not set savings preferences after being enrolled in the program will automatically have 5 percent of their pay diverted into an IRA.
Callahan said the “opt-out” mechanism will help ensure maximum coverage.
“This harnesses the power of what we know from behavioral economics,” Callahan said.
There is no minimum contribution from employees, who can set their own contribution level. Any employee who receives a 1099 form from the IRS can participate, including independent contractors such as ride-service drivers.
One of the program’s drawbacks is that employers aren’t allowed to match funds from employees into the IRA. Doing so would make it an employer-sponsored plan under the Employee Retirement Income Security Act of 1974, Selenski said.
Ascensus College Savings Recordkeeping Services, LLC will administer the program and State Street Global Advisors will serve as the investment manager.
The history of CalSavers goes back ten years, to state Sen. Kevin de Leon pushing for legislation to provide a state retirement plan for private-sector workers who were not covered by employer-sponsored plans.
The final version passed in 2016.
To help rollout the pilot launch, on Nov. 28, state Treasurer John Chiang will be in Fresno during an event to promote CalSavers.
If employers do not offer their own sponsored retirement plan and do not want to participate in CalSavers, they will face financial penalties. Even if CalSavers pushes employers to create their own sponsored retirement plan, that’s still a win, Selenski said.
“We would consider that a huge success,” Selenski said.
For more information, visit calsavers.com.