What Is CalSavers? California’s State-Mandated Retirement Savings Program Explained

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 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, 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.
• 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. Also, if your business grows beyond the threshold and you don’t have a plan, you’ll be expected to comply with CalSavers by the next deadline.

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. In contrast, CalSavers does not allow any waiting period for eligibility: employees become eligible virtually immediately. 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.

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.

One of the defining features of CalSavers is automatic enrollment. 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. There is no lengthy waiting period to join – employees can start saving in CalSavers within their first month on the job.

Once enrolled, employees have complete control over their participation. Opting out is allowed at any time. Those who opt out are generally re-invited to join each year. Employees who initially opt out can also opt back in whenever they want by simply enrolling online or contacting CalSavers’ customer service.

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.
• Provide an Employee Roster: During registration, employers upload a list of all eligible employees to the CalSavers portal. For new hires, employers need to add them to the system within 30 days of hire.
• Facilitate Payroll Deductions: 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.
• Maintain Neutrality: Employers should remain neutral about the program – they must not pressure employees either to participate or to opt out.
• No Employer Contributions: Employers do not contribute to employees’ CalSavers accounts. CalSavers is funded 100% by employees.
• Handle Notifications and Record-Keeping: Employers should distribute any required informational materials and keep records of compliance.

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. There are no fees charged to employers for participating. 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:

• Automatic Enrollment and Contributions: If your employer facilitates CalSavers, you will be automatically enrolled at a 5% contribution rate unless you opt out within 30 days. The program will also auto-increase your contribution by 1% each year (up to 8% max).
• Opting Out or Changing Rates: Participation is completely voluntary – you can opt out at any time. You can also choose a different contribution rate (as low as 1% or higher than 5%).
• Roth IRA Account Features: The CalSavers account is a Roth IRA: contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free. The annual contribution limits for IRAs are lower than 401(k) limits; for 2025 the IRA contribution limit is $7,000 (or $8,000 if age 50+).
• Investment Options: CalSavers offers a menu of investment choices including target date funds, a core bond fund, a global equity stock fund, a money market fund, and an ESG fund.
• Portability and Flexibility: The account belongs to you. If you change jobs, the money stays in your IRA. 100% of your contributions are yours immediately, and there are no employer contributions to worry about vesting.
• No Cost (and Low Fees) for Employees: There are no direct fees charged to employees to join. The investments have small annual fees (roughly 0.3% to 0.5% of assets per year).

Comparing CalSavers to a traditional 401(k): A 401(k) could allow much higher contributions (over $22,000 per year pre-tax) and possibly employer matching contributions – those features are not available in CalSavers. On the plus side, CalSavers has no vesting period, no minimum service requirement, and is extremely easy to use. In short, CalSavers is a great starter retirement plan. 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:

• If an employer is notified of non-compliance and 90 days pass without compliance, the employer can be fined $250 per eligible employee.
• If non-compliance continues and 180 days pass without the employer complying, an additional $500 per employee fine is imposed. 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 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.

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. 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.

For employees, if you receive an email or letter about being enrolled in CalSavers, don’t ignore it. 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.

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. 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.