The Golden State is expanding the mandate for businesses to provide access to retirement savings for employees where workers can save and invest for their golden years.
California Governor Gavin Newsom has signed a state bill expanding the state sponsored retirement plan, CalSavers, to broaden access for private sector workers who do not have a retirement plan available through their employer.
“This bill is a major step toward improving retirement security for all working Californians,” California State Treasurer Fiona Ma in a statement. “For the business community, this bill ensures the smallest employers will no longer be excluded from a valuable tool for employee recruitment and retention.”
Starting January 1, 2023, the legislation requires employers with at least one employee—who is not the owner of the business—to participate in the state program. Employers that are mandated, with less than five employees, have until December 31, 2025, before they must register.
CalSavers is one among several state sponsored retirement plan arrangements that provides a retirement savings and investment avenue for private employees who are without one at work. Besides California, Connecticut, Illinois, Maryland, Massachusetts, Michigan and New York are among the other states in various stages of standing up retirement plans for private workers, according to the National Conference of State Legislatures.
A survey from ShareBuilder 401(k) found that 74% of small businesses do not provide employees with an option dedicated for tax-preferred retirement savings and investment at work, earlier this year. State programs like California’s and others including OregonSaves aim to fill this gap for private-sector workers.
Retirement plan deferrals made through state programs are similar to other defined contribution plans, with payroll deductions to individual retirement accounts, where employees select a certain amount from their paycheck to defer for retirement. The IRA tax-deferred savings limits of $6,000 per year apply to the auto-IRA programs, while employer-sponsored 401(k) and other DC plans have a savings limit of $20,500.
“SB 1126 will ensure that nearly every working Californian has access to a workplace retirement savings program,” Bill author state senator Dave Cortese, D-San Jose, said in a statement. “By assisting both employers and employees, this legislation will help millions of Californians save for their future so that they can retire with security and peace of mind.”
According to the release, more than 106,000 California employers have signed up for CalSvers. The program comprises 331,000 funded accounts and $273 million in assets, a spokesperson says.
Senate Bill 1126 was written Cortese and sponsored by Treasurer Ma. She is also chairperson of the CalSavers Retirement Savings Board.
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