What Is CalSavers? California’s State-Mandated Retirement Savings Program Explained
Overview: California’s CalSavers program is a state-run retirement savings plan designed to ensure employees have access to a workplace retirement option, particularly at small businesses that don’t offer their own plan. In this post, we’ll explain why CalSavers exists, who it applies to, how it works, and what both employers and employees need to know in 2025.
What Is CalSavers?
CalSavers is a state-run IRA program that allows employees to save for retirement through automatic payroll deductions, if their employer doesn’t offer a private retirement plan. In a nutshell, CalSavers establishes a Roth Individual Retirement Account (IRA) for each participating worker. Contributions are made post-tax (Roth), meaning employees contribute after-tax dollars and their savings grow tax-free for retirement. The program is overseen by a state-appointed board, and the accounts are managed by CalSavers via an outside investment administrator, so employers do not have to handle the funds or manage investments.
Key mechanics of CalSavers include automatic enrollment and default investment settings. When an eligible worker is enrolled, 5% of their gross pay is deducted and deposited into their Roth IRA by default. The program features automatic escalation of contributions: each year, the contribution rate increases by 1% (unless the employee opts out of escalation) until reaching a maximum of 8% of pay. Employees can choose to change their contribution rate or investment options at any time. All contributions go into the employee’s personal IRA, which offers a menu of investment options (such as target-date funds, bond or equity funds, and an ESG fund) so employees have some choice in how their money is invested. Importantly, the CalSavers accounts are owned by the employees and are portable: if a worker changes jobs, the account stays with them (similar to any IRA), and they can contribute to it at their next job if that employer participates in CalSavers or otherwise through bank transfers.
California implemented CalSavers to increase retirement savings among workers at businesses that did not offer 401(k)s or similar plans. It is not funded by taxpayers or employers; rather, employees fund their own accounts, and the administrative costs are covered by modest fees on those accounts. Employers pay nothing to facilitate CalSavers ( no fees and no contributions) and have no fiduciary liability for the program. In essence, CalSavers provides a low-cost, easy-to-use retirement plan for employees who would otherwise have none, with the state handling the heavy lifting of administration and compliance.
Who Must Comply?
California’s retirement mandate applies to virtually all employers in the state above a certain size that do not already offer a qualified retirement plan. If an employer sponsors a qualified retirement plan (such as a 401(k), 403(b), SEP, SIMPLE IRA, or pension plan), they are exempt – but they must formally certify that exemption via the CalSavers portal. Employers that do not offer a plan are required by state law to register for CalSavers and facilitate it for their employees. This mandate has been phased in over several years, with deadlines based on employer size:
100+ employees: Deadline was September 30, 2020 (larger employers should already be in compliance).
50+ employees: Deadline was June 30, 2021.
5+ employees: Deadline was June 30, 2022.
1–4 employees: New deadline is December 31, 2025. (This recent expansion, enacted in 2022 via Senate Bill 1126, means even very small employers will be included.)
In practical terms, by the end of 2025 every California employer with at least one W-2 employee must either offer their own retirement plan or register for CalSavers. The only exceptions are a few narrow categories: businesses with no employees other than owners, and certain non-private entities (government employers, tribal organizations, and religious organizations are exempt). Nonprofits are subject to the mandate just like for-profit businesses, as long as they have the requisite number of employees.
If your company already has a private retirement plan, you do not need to enroll in CalSavers – having a qualified plan satisfies the mandate. However, you should notify the state of your exemption by registering that information on the CalSavers portal. Keep in mind that “having a plan” means an employer-sponsored plan is in place for your employees; if you ever terminate your plan or if it lapses, you would need to join CalSavers (the rule is that if you stop offering a qualified plan, you must register for CalSavers by the end of that year). Also, if your business grows beyond the threshold (e.g. you hire a 5th employee) and you don’t have a plan, you’ll be expected to comply with CalSavers by the next deadline (generally within that calendar year).
Important note on waiting periods: Some employers who offer their own 401(k) or pension plan impose a waiting period (e.g. new hires must complete 3 or 6 months of service before joining the plan). Such an employer is exempt from CalSavers and cannot enroll those new employees in CalSavers during the waiting period. This can create a gap in coverage – the new hires have no retirement savings program for those first few months, because the employer is considered to already offer a plan. In contrast, CalSavers does not allow any waiting period for eligibility: employees become eligible virtually immediately (more on this below). Employers with their own plan should be aware that a long waiting period leaves employees without access to a workplace retirement vehicle in the interim. One implication is that workers might delay saving for retirement during that gap. As a best practice, employers may want to consider shorter waiting periods or educate new employees on other ways to start saving (such as contributing to an IRA on their own) during that window. The state’s goal is to maximize retirement savings participation, so eliminating delays is a key aspect of the CalSavers approach.
Which Employees Are Covered?
All California-based W-2 employees age 18 or older are generally eligible to participate in CalSavers if their employer is in the program. The program casts a wide net – it doesn’t matter if an employee is full-time, part-time, temporary, or seasonal; as long as they are paid wages through payroll and meet the age requirement, they count. (Independent contractors are not included, since they are not W-2 employees, but they could choose to sign themselves up for an IRA independently. Household employers of domestic workers are not explicitly exempt in the law, so if you have a domestic employee on payroll in California, you should check the latest guidance on whether CalSavers applies.)
One of the defining features of CalSavers is automatic enrollment. Here’s how it works: once an employer registers for CalSavers and uploads their employee roster, each eligible employee will be automatically enrolled after 30 days unless they choose to opt out during that window. When a new employee is hired at a participating company, the employer is required to add them to the CalSavers system within 30 days of hire, after which that employee also gets auto-enrolled after a 30-day opt-out period. In other words, there is no lengthy waiting period to join – employees can start saving in CalSavers within their first month on the job. This is a deliberate difference from many 401(k) plans, where employers may set a waiting period (often 3 months or 1 year) before an employee can contribute. CalSavers’ no-wait policy ensures that even short-term and newly hired workers have the opportunity to begin saving right away.
Once enrolled, employees have complete control over their participation. Opting out is allowed at any time – an employee can decline participation initially or stop contributions later if they wish. Those who opt out are generally re-invited to join each year (CalSavers may automatically re-enroll opt-outs annually during open enrollment, giving employees the choice again, with the default being to resume contributions). This gentle “nudge” each year is meant to encourage people to start saving if their situation changes. Employees who initially opt out can also opt back in whenever they want by simply enrolling online or contacting CalSavers’ customer service.
To summarize, any adult employee working for a California employer that is subject to CalSavers will be included. From the employer’s uploaded list, CalSavers will reach out to each employee with information about the program, and if the employee takes no action for 30 days, contributions will begin automatically. This applies to all eligible employees, regardless of job class or part-time/full-time status. The inclusiveness of eligibility – without service length requirements – is intended to maximize the number of workers building retirement savings. It also means employers don’t have to make judgment calls on who is eligible; if they’re on payroll (and 18+), they’re in.
Employer Responsibilities
One major reason CalSavers has been well-received by many small businesses is that employer responsibilities are very minimal. The program was structured to put almost no financial or administrative burden on employers beyond some initial setup and ongoing payroll deduction facilitation. Here’s what employers must do under CalSavers:
Register or Claim Exemption: By the applicable deadline, the business must either register for CalSavers online or submit an exemption certification if it has its own plan. Registration is a quick process requiring basic information (employer ID, contact person, etc.). If exempt, you just provide proof of your existing plan once.
Provide an Employee Roster: During registration, employers upload a list of all eligible employees (name, SSN or ITIN, date of birth, contact info) to the CalSavers portal. This roster is used by CalSavers to communicate with employees and manage enrollments. For new hires going forward, employers need to add them to the system within 30 days of hire.
Facilitate Payroll Deductions: This is the core ongoing duty. For each pay period, the employer must deduct the appropriate percentage from enrolled employees’ paychecks and remit those contributions to CalSavers in a timely manner. Essentially, the employer acts as a pass-through for the employee contributions, similar to how they’d withhold and remit taxes or other deductions. CalSavers provides tools to make the remittance straightforward (many payroll providers can automate this).
Maintain Neutrality: Employers should remain neutral about the program – they must not pressure employees either to participate or to opt out. The law explicitly forbids employers from giving advice or inducing employees one way or the other. Your role is simply to facilitate the option; the choice to save or not is up to the worker. Employers also do not handle any investment decisions or program management – all that is managed by CalSavers. You’re not choosing funds or managing accounts (in fact, you have no access to the money at any point beyond sending in the payroll deductions).
No Employer Contributions: By design, employers do not contribute to employees’ CalSavers accounts. There is no matching or company deposit feature (unlike a 401(k) where an employer match is optional). CalSavers is funded 100% by employees. Employers simply send in what is withheld from pay.
Handle Notifications and Record-Keeping: CalSavers will directly notify employees about enrollment, but employers should distribute any required informational materials (the state may provide standard notices). Employers might also need to keep records of compliance (e.g. confirmation of registration or exemption) and respond to any state notices. If an employer gets a notice of non-compliance, they need to act within the given timeframe to avoid penalties (see next section). Fortunately, once you’re set up, there’s little else administratively – no annual filing, no nondiscrimination testing, etc., as there would be with a 401(k).
What Employers Don’t Have to Do: It’s worth highlighting that beyond the simple steps above, employers have no further obligations in managing a CalSavers account. You are not a fiduciary to the plan and bear no liability for investment losses or decisions made by employees. You aren’t responsible for answering employees’ detailed questions about the program (CalSavers provides customer support for savers), and you don’t handle distributions or rollovers. In short, once you’ve registered and set up the payroll process, your job is largely done. This “light touch” approach was intentional – the state wanted to minimize the administrative burden on small businesses. There are no fees charged to employers for participating, and you don’t have to contribute any money of your own. Compared to setting up a private 401(k) plan, which involves paperwork, ongoing administration, fiduciary oversight, and potential costs, CalSavers is extremely hands-off for an employer. Essentially, your responsibilities boil down to sign up, upload your employees, and send in deductions – and that’s it.
How CalSavers Works for Employees
For employees, CalSavers is designed to be a simple and automatic way to start saving for retirement. Here’s what an employee should know about how the program works:
Automatic Enrollment and Contributions: If your employer facilitates CalSavers, you will be automatically enrolled at a 5% contribution rate (5% of your gross pay) unless you opt out within 30 days of notification. This 5% is taken from your paycheck after taxes (since it’s a Roth IRA) and deposited into your personal IRA account. Contributions begin on the first pay cycle after your 30-day opt-out window ends. If you do nothing, money will start going into your CalSavers account by default.
Opting Out or Changing Rates: Participation is completely voluntary – you can opt out online, by phone, or by form at any time. If 5% feels too high, you can also choose a different contribution rate (as low as 1% or even higher than 5% if you want, up to annual IRA limits). The program will also auto-increase your contribution by 1% each year (up to 8% max) to help you gradually save more, but you can disable this auto-escalation or set a different saving rate that suits you. You’re always in control – you can increase, decrease, or stop contributions whenever you like.
Roth IRA Account Features: The CalSavers account is a Roth IRA, which has some important features: contributions are made with after-tax dollars, but qualified withdrawals in retirement (after age 59½, subject to Roth rules) are tax-free. Roth IRAs also allow you to withdraw your contributions (but not earnings) without penalty, which gives some flexibility if an emergency arises – though it’s meant for retirement, it’s your money. The annual contribution limits for IRAs are lower than 401(k) limits; for example, in 2025 the IRA contribution limit is $7,000 (or $8,000 if age 50+), whereas 401(k) plans allow over $20,000 per year. This means CalSavers savers can put away a few hundred dollars a month (up to the limit) but cannot shelter as much income as they could in a 401(k). Additionally, high earners should note that Roth IRAs have income eligibility caps – if your income is above a certain threshold (e.g. around $150,000 for single filers in 2025), you may be restricted from contributing the full amount. CalSavers has provisions for such cases (the account can be recharacterized to a traditional IRA if you’re over the Roth income limit), but relatively few employees in small businesses will hit those limits.
Investment Options: When your account is set up, your contributions will typically go into a default investment, often a target-date retirement fund appropriate for your age. However, CalSavers offers a menu of investment choices so you can allocate your money in a way that matches your goals and risk tolerance. Options include target date funds, a core bond fund, a global equity stock fund, a money market fund, and even an ESG (Environmental, Social, Governance) fund for sustainable investing preferences. You can log into your account and change your investment allocation at any time. If you don’t make a choice, the default (target-date fund) is intended to be a reasonable “set it and forget it” option that becomes more conservative as you approach retirement age.
Portability and Flexibility: One of the great advantages of CalSavers being an IRA is portability. The account belongs to you, the employee. If you change jobs, the money stays in your IRA – it is not tied to your employer. You can keep contributing to the same account at your new job (if the new employer also has CalSavers, they’ll just add you and your contributions continue; if not, you could contribute to it independently) or you can even roll it over into another IRA or qualified plan later. There is no vesting schedule or waiting to own the money – 100% of your contributions are yours immediately, and there are no employer contributions to worry about vesting. This portability is a huge plus for workers who might have multiple employers over a career or work part-time jobs; you don’t end up with a bunch of small 401(k) accounts all over, you have one steadily growing IRA that you carry with you.
No Cost (and Low Fees) for Employees: There are no direct fees charged to employees to join CalSavers – all the enrollment and setup is free. The investments do have small annual fees (as any mutual fund or IRA would) which are taken out of the account’s assets. The total administrative and investment fees for CalSavers range roughly around 0.3% to 0.5% of assets per year (this covers the program administration and the cost of the funds). To put that in perspective, if you had $1,000 in your account, you might pay a few dollars a year in fees. These fees are comparable to – albeit slightly higher than – the fees in many low-cost 401(k) plans, but they are far lower than typical retail IRA fees might be for a small balance. The important takeaway is that the program is free for you to use, and fees are modest and automatically handled, so you don’t need to worry about writing checks or paying anything out-of-pocket to maintain your CalSavers account.
Comparing CalSavers to a Traditional 401(k): For employees, the benefit of CalSavers is that at least you have a way to save for retirement now, whereas without it you might have nothing through your job. That said, CalSavers has some limitations compared to a full-fledged 401(k). A 401(k) (if your employer offered one) could allow much higher contributions (over $22,000 per year pre-tax, as of mid-2020s) and possibly employer matching contributions or profit-sharing – those features are not available in CalSavers. Also, 401(k)s allow traditional pre-tax contributions (reducing your current taxable income), whereas CalSavers is Roth only (tax-free withdrawals later, but no tax break up front). Depending on your income and tax situation, some people might prefer the pre-tax option which CalSavers doesn’t provide. Additionally, because CalSavers is not an ERISA-covered plan (ERISA is the federal law governing corporate retirement plans), the IRA accounts may not have the same creditor protections that a 401(k) account would enjoy under law, and loans from the retirement account (a feature some 401(k)s have) are not possible with an IRA. These are relatively minor trade-offs for many, but they’re worth noting. On the plus side, CalSavers has no vesting period, no minimum service requirement, and is extremely easy to use – there’s no paperwork for the employee beyond maybe logging in to see your balance. In short, CalSavers is a great starter retirement plan: it gets you in the habit of saving and ensures you have an account growing for retirement. If your employer never offers a 401(k), you at least won’t be left completely on your own. And if your employer does later add a 401(k) or you move to a job with one, you can always roll over or transfer your savings to that plan if it makes sense, or simply keep contributing to both. The most important thing is that you start saving as early as possible, and CalSavers facilitates that for many workers who previously had no convenient option.
Penalties and Compliance
California authorities have enforcement mechanisms to ensure employers adhere to the CalSavers mandate. If an eligible employer fails to register or doesn’t facilitate the program for their employees, they can face financial penalties. The penalty structure (per California Government Code §100033) is as follows:
If an employer is notified of non-compliance and 90 days pass without compliance, the employer can be fined $250 per eligible employee. This means if you had, say, 10 employees who should be in CalSavers, that’s $2,500 in penalties to start.
If non-compliance continues and 180 days pass (approximately another 90 days beyond the first fine) without the employer complying, an additional $500 per employee fine is imposed. So in our 10-employee example, that would be another $5,000. These fines are cumulative (total $750 per employee if you go beyond 180 days).
In practice, the CalSavers enforcement unit will first send a notice giving the employer a chance to comply. The key is not to ignore any communication about CalSavers. If you receive a notice and you actually have a qualified plan already, you likely just need to register as exempt to avoid penalties. If you don’t have a plan, you should register for CalSavers immediately. The state has begun enforcement, and as of 2023 they have issued penalty notices to many non-compliant businesses. It’s far better to proactively comply than to pay fines – $750 per employee is a steep price for something that actually costs the employer nothing to do.
Aside from state penalties, failing to comply also risks employee relations and legal exposure. Employees who are aware of the law could file complaints, and the state could take further action. Non-compliance could even potentially factor into other business licensing or contracting eligibility in California (for example, some state contract bids might require confirmation of compliance with all state laws). The bottom line: it’s not worth risking non-compliance. The program is easy to implement, and there’s no direct cost to you as an employer – so the penalties are an entirely avoidable expense.
To stay compliant, mark your calendar for your deadline (again, December 31, 2025 for the smallest employers as the final phase) and don’t wait until the last minute. The state has been actively reminding businesses via mail and email. You can register early – you don’t have to wait. In fact, early adoption is encouraged. As soon as you’re aware that you’re covered by the law, it’s wise to just take care of it. Once you’re registered and employees are enrolled, your ongoing duties are minimal, so the hard part is just that initial setup.
Conclusion
CalSavers represents an important shift in how small businesses approach retirement benefits. California’s state-mandated retirement savings program ensures that even if you’re a small or medium business owner who can’t afford a full 401(k) plan, your employees still have a pathway to save for retirement. As we’ve explained, the program is simple, turnkey, and carries no costs for employers, making compliance a straightforward process. By 2025, essentially all California employers with at least one employee must be on board, so now is the time to check your compliance status. If you’re an employer, ask yourself: Do we offer a retirement plan? If not, and you have California workers, you need to register for CalSavers (or explore offering a plan) before the deadline. If you do already offer a plan, make sure you’ve filed an exemption and consider whether your plan’s eligibility rules (like waiting periods or excluding part-timers) could leave any gaps in coverage for your workforce.
For HR professionals and business owners, a practical first step is to visit the official CalSavers website or portal and go through the registration or exemption process. Have your employee list and federal EIN ready – the sign-up only takes a few minutes. CalSavers provides employer toolkits and a client services team that can answer questions and help you understand your requirements. It’s wise to communicate with your employees about what CalSavers is, so they aren’t caught off guard by the enrollment notices. Emphasize that this is a state program to help them save for retirement, and that participation is their choice (they can opt out if they don’t want to participate).
For employees, if you receive an email or letter about being enrolled in CalSavers, don’t ignore it. Take a moment to educate yourself (hopefully this article helps) and decide if you want to participate or opt out. In almost all cases, contributing some money – even a small amount – to retirement early on can be beneficial, so CalSavers is an opportunity to start building your nest egg. Remember, you can adjust your contribution level to what feels comfortable. The key is to just get started.
Finally, it’s worth noting that CalSavers vs. a private plan is not an either/or for employers in the long run. CalSavers fulfills the legal mandate and is a great baseline benefit. However, as your business grows or as you aim to stay competitive in talent recruitment, you might later consider transitioning to a private retirement plan like a 401(k) for greater flexibility (higher contribution limits, matching contributions, etc.). Many small businesses start with CalSavers to meet the requirement and then upgrade to a 401(k) when they’re ready – and that’s completely fine. The important thing is every employee has a chance to save, now. If you’re unsure which route to take – sticking with CalSavers or setting up your own plan – it could be helpful to consult a financial or retirement plan advisor. They can explain the pros and cons in the context of your specific business.
If you’re a California employer, don’t wait. Ensure you’re in compliance with the CalSavers law. Check the size of your workforce and your retirement plan status today. If you need to register for CalSavers, head to the official CalSavers employer portal and get started. If you believe you’re exempt, submit your exemption information to avoid any confusion with the state. For employees, take charge of your financial future by engaging with programs like CalSavers or any retirement plan your employer offers. Ask your HR department if your company is participating and what that means for you. By being proactive, you’ll turn what could be just a mandate into a valuable opportunity for you and your team to secure a better retirement. CalSavers is here to stay, and it’s making retirement savings accessible to millions – make sure you and your organization are making the most of it.
