If your client is a business owner with five or more employees who does not have a retirement plan, has not registered with the state of California and has received a Franchise Tax Board billing notice, there are steps that the business owner can take to remedy the fine.

The implementation of CalSavers is in phases based on the number of employees in the business. Initial compliance has been significant at 93 percent. Initial compliance means the employer has either:

1. Disclosed that there is an available retirement plan in their business and has been properly exempted.

2. Registered on the CalSavers website, the first step toward full facilitation of the program. 

The FTB mails penalty notices to the 7 percent of employers who have yet to comply. The fine assessed can be up to $750 per employee for not registering with CalSavers. While a financial penalty for failure to comply is critical to the program’s long-term success, CalSavers’ goal is not to collect revenue through penalties; rather, it wants businesses running the program and for their employees to start saving money.

If a business receives an FTB penalty notice, they should take these steps in order before paying the penalty:   

1. Fully comply with the mandated action. That means facilitating the payroll deductions for all eligible employees who do not opt out of the program.

2. Contact CalSavers and confirm your compliance.

3. Discuss penalty payment options with CalSavers.       

Compliance and Final Phase of Implementation

1. CalSavers is enforcing the mandate for all employers with five or more employees. Since November, efforts have reduced the pool of penalizable employers from 30,000 to about 15,000. 

2. 2022 legislation expanded the mandate to include businesses with one to five employees. CalSavers estimates there are at least 400,000 such businesses in California. Their compliance deadline is the end of 2025.

CalSavers Background

The adoption of CalSavers by business owners or the business owner adoption of retirement plans fulfills a long-held desire of CalCPA’s financial literacy efforts that Americans achieve “on track for retirement” status. Out of an estimated 6.1 million business owners with employees, there are about 625,000 401(k) plans.

Simplified Employee Pension Plans and SIMPLE IRA plans nudge up that number a bit. But it is safe to say that most business owners with employees do not have a retirement plan. Enter CalSavers, which features:

1. Automatic enrollment at 5 percent.

2. Automatic escalation at 1 percent per year, capping out at 8 percent.

3. Default account as a Roth IRA.

4. Option to re-enroll after opting out

5. Secure 2.0 created a streamlined potential for deposit of the Savers Credit directly into participant accounts in 2027.

It’s important to note that participants can always lower or raise the savings amount. Employees can also opt-out.

Over the last year, the assets under management have increased from $595 million to $858 million.

Part of CalSavers’ success is in impacting the lives in communities that have historically had less access to an employer plan: women, low income and minority communities across California. The public-private partnership substantially increases the potential for the financial well-being of Californians across a broad spectrum of the underprivileged. 

CalSavers supports the private sector financial industry serving employers with the means to implement their plans, while also providing a government-administered option to employers better served by a no-cost, non-fiduciary program that’s easy to implement.

Research shows that people are exponentially more likely to be on track for retirement savings if they save through an automatic paycheck deduction.

One data point of success is with labor forces that evolve from one employer to another: Some 15 percent of accounts have contributions from different employers. We believe the current solution of not requiring cashing out of retirement plan assets or shifting assets to another company retirement plan or an IRA creates “sticky” retirement account success; the assets remain in the retirement account over time.