For millions of Americans, saving for retirement has always been a challenge, especially for those without access to employer-sponsored retirement plans. In California, more than 7.5 million private-sector workers lacked access to such plans. To bridge this gap, the state launched CalSavers, a retirement savings initiative aimed at ensuring financial security for workers across all industries. So, how does CalSavers work?
Whether you’re an employee curious about your contributions or an employer trying to stay compliant with state mandates, this guide breaks it all down.
What is CalSavers?
CalSavers is a state-run retirement savings program designed for workers who don’t have access to a workplace retirement plan. It provides a Roth IRA (Individual Retirement Account) that employees can contribute to directly from their paycheck.
How Does CalSavers Work? – Key Objectives
- Promote retirement savings among workers
- Provide an easy-to-manage system for small and medium businesses
- Reduce the long-term burden on public social programs
Is CalSavers Mandatory?
Yes, for eligible employers. California mandates that employers with one or more employees who do not offer a retirement plan must either:
- Register with CalSavers, or
- Offer a qualified private retirement plan (e.g., 401(k))
How Does CalSavers Work in California?
California’s CalSavers program is both simple and efficient, making retirement savings accessible for everyone. Here’s a closer look at how does CalSavers work in California:
Enrollment
Employers must register their businesses with CalSavers and facilitate employee participation unless they already offer a qualified plan like a 401(k).
- Automatic Enrollment: Employees are automatically enrolled at a 5% contribution rate unless they opt out.
- Opt-Out Option: Employees may choose to opt out or change their contribution amount at any time.
Contributions – How Does CalSavers Work?
- Initial Contribution Rate: 5% of gross pay
- Auto-escalation: Increases by 1% each year, capped at 8% unless changed by the employee
Investment Options
CalSavers offers several low-fee investment options, including:
- Target retirement date funds
- Core bond funds
- Global equity funds
Employees can customize how their funds are invested based on risk tolerance and retirement goals.
How Does CalSavers Work for Employees?
Simple and Portable
CalSavers accounts are tied to the individual, not the employer. This means:
- If you change jobs, your account follows you.
- You can continue to contribute even if you’re self-employed or unemployed.
No Hidden Fees
Employees pay an annual asset-based fee that ranges from 0.25% to 0.95%, depending on the fund. There are no administrative fees for employees.
Contribution Limits – How Does CalSavers Work?
Since CalSavers uses a Roth IRA, the annual contribution limit is set by the IRS. For 2025:
- Under 50: $7,000/year
- 50 or older: $8,000/year (includes $1,000 catch-up contribution)
Tax Benefits
- Contributions are made post-tax (Roth IRA), so withdrawals in retirement are tax-free if IRS conditions are met.
- Lower-income workers may qualify for the Saver’s Credit, reducing their tax liability.
How Does CalSavers Work for Employers?
Employers play a crucial role in the program’s success, but are not financially responsible for contributions.
Employer Responsibilities
- Register for CalSavers if no qualified retirement plan is offered
- Upload employee information to the CalSavers portal
- Facilitate payroll deductions for participating employees
- Stay compliant with state deadlines and program rules
Deadlines to Comply – How Does CalSavers Work?
The registration deadlines for employers depend on the number of employees:
- 100+ employees: Final deadline was September 30, 2020
- 50+ employees: Final deadline was June 30, 2021
- 5+ employees: Final deadline was June 30, 2022
- 1-4 employees: Deadline is December 31, 2025
Note: If your number of employees increased to any of the other categories mentioned above, then the end of the current year would be the deadline to enroll in CalSavers.
No Cost for Employers
Employers do not contribute to employee accounts, incur no fees, and are protected from fiduciary responsibility since the state manages the program.
Benefits of CalSavers – How Does CalSavers Work?
For Employees:
- Automated savings
- No need to open a retirement account independently
- Investment growth with compound interest
- Flexibility in contributions and fund selection
For Employers:
- Easy to implement and administer
- Helps attract and retain employees
- Compliance with state law
Common Questions About CalSavers
Is Participation Required?
- Employees: No, it’s voluntary. You’re automatically enrolled but can opt out.
- Employers: Yes, if you meet the criteria and don’t offer a retirement plan.
Can I Withdraw My Funds Anytime?
Yes, but early withdrawals may be subject to IRS penalties and taxes unless you meet certain criteria.
What if I Already Have a Roth IRA?
You can still participate, but you must ensure your total contributions across all IRAs don’t exceed the IRS limits.
Is CalSavers the Same as a 401(k)?
No. CalSavers is a Roth IRA-based program, whereas a 401(k) is an employer-sponsored plan with different rules, limits, and tax treatments.
How to Enroll or Register
For Employees – How Does CalSavers Work?
- Wait to be enrolled by your employer, or
- Sign up directly at CalSavers.com
For Employers:
- Visit the CalSavers portal
- Provide business and employee details
- Begin payroll deductions as instructed
Penalties for Non-Compliance
Employers who fail to register or allow eligible employees to participate may face financial penalties:
- $250 per eligible employee if non-compliant after 90 days
- Additional $500 per employee if still non-compliant after 180 days
Comparing CalSavers to Other Retirement Plans
| Feature | CalSavers | 401(k) | SEP IRA | SIMPLE IRA |
| Employer Contributions | Not allowed | Optional | Required | Required |
| Tax Treatment | Roth IRA (post-tax) | Traditional or Roth | Traditional | Traditional |
| Annual Contribution Limit | $7,000 (under 50) | $23,000 (under 50) | $70,000 | $16,500 |
| Administrative Burden | Low | High | Medium | Medium |
The Future of CalSavers
California has set a precedent with CalSavers, inspiring similar programs in other states like Oregon (OregonSaves) and Illinois (Secure Choice). As financial security becomes a larger national issue, state-facilitated savings plans may become the new norm.
Final Thoughts: How Does CalSavers Work?
If you’re an employee with no access to a retirement plan, CalSavers offers a simple, secure, and portable option for building long-term wealth. For employers, the program is a cost-effective way to comply with California law and support your workforce’s financial health.
Understanding how CalSavers works is the first step in preparing for a more stable retirement, whether you’re saving for the future or helping your team do the same.
