California Retirement Mandate: CalSavers or Your Own 401(k)
California requires every employer without a retirement plan to register for CalSavers. The deadlines, the penalties, and when a 401(k) is better.
A founder I know runs a small studio in Oakland with four people on payroll. She treated a state letter as junk mail for most of a year. It was a registration notice for the retirement mandate, and by the time she asked me about it the penalty clock had already been running for months.
That is the shape of this rule. It does not arrive as an audit or a lawsuit. It arrives as a piece of mail telling you that because you pay somebody in California and do not sponsor a retirement plan, you now have to pick one of two paths, and picking neither is a per-employee fine.
What follows is who is actually covered, how the deadlines get assessed every spring, what noncompliance costs, how the state auto-IRA works down to the default deferral rate, and the real case for skipping the program and sponsoring your own 401(k).
I build the people and records tooling for small businesses without a dedicated HR person at FirstHR. FirstHR is an onboarding and HR platform, not a payroll provider and not a retirement plan provider, and this is general information rather than legal or tax advice.
What the Law Requires
California gives an employer without a retirement plan exactly two compliant positions: sponsor a qualifying plan of your own, or register your workplace with the state program and run the payroll deductions. There is no third position where you decline both and wait.
The exemption covers more kinds of plan than most owners expect. An employer that provides an employer-sponsored retirement plan, including a defined benefit plan, a 401(k), a simplified employee pension (SEP), or a savings incentive match plan (SIMPLE), or that offers an automatic enrollment payroll deduction IRA, is exempt from the program requirements (California Government Code 100032). The plan itself discharges the duty.
Telling the state about the plan is a separate step that people skip. The program regulations say an exempt employer may, but need not, inform the program administrator (10 CCR 10001). In practice the program keeps writing until you do, so certifying is the simpler path.
None of this is unique to California, either. A widening group of states now run comparable auto-IRA programs, so an employer with staff in several states can be facing more than one registration with different rules attached.
California runs by far the largest of these programs. CalSavers held 57 percent of all state auto-IRA assets as of September 2026, ahead of Oregon at 16 percent and Illinois at 11 percent, according to the Georgetown University Center for Retirement Initiatives.
Who Has to Register
You are covered if you employ an average of one or more eligible employees in California and do not sponsor a qualifying retirement plan. That is the entire test, and the threshold reaching a single employee is what changed the picture for small businesses.
An eligible employee is age eighteen or older and receives W-2 wages for work in California. Part-time counts. Seasonal counts. Somebody who joined in November counts. The definition does not carve out short tenure or low hours, which is why the question of whether part-time staff are covered comes up so often and has such a boring answer here.
Only a few kinds of employer fall outside the mandate. Sole proprietors and partnerships with no employees other than the owners are out, as are government entities, religious organizations, and tribal organizations. Everyone else either registers or certifies a plan-based exemption, and the difference between those two paths is a form, not a judgment call.
Employers using a professional employer arrangement should not assume the provider carries the obligation. Under the program regulations the client of a professional employer organization (PEO) is the eligible employer, whether or not the PEO is IRS-certified. Staffing firms are treated differently: for workers placed by a temporary services or leasing employer, the staffing firm is the eligible employer.
When Registration Was Due
The phased rollout is over. The statute set staged deadlines by employer size, and the final one, reaching employers with a single eligible employee, was December 31, 2025. The exact dates for the earlier phases come from the program regulations (10 CCR 10002).
| Phase | Employers covered | Deadline | Status now |
|---|---|---|---|
| First | More than 100 eligible employees | September 30, 2020 | Closed. Nonregistered employers are out of compliance |
| Second | More than 50 eligible employees | June 30, 2021 | Closed. Nonregistered employers are out of compliance |
| Third | Five or more employees | June 30, 2022 | Closed. Nonregistered employers are out of compliance |
| Final | One or more eligible employees | December 31, 2025 | Closed. The mandate now reaches every covered employer |
| Rolling | Employers newly identified as eligible | December 31 of the notification year | Assessed each spring from payroll filings |
The rolling row is the one that still generates work. Each spring the program assesses employer status by averaging the four quarterly payroll filings you already submit to the Employment Development Department, then sends registration information to newly identified employers by mail or email. Those employers have until December 31 of that year to register or certify an exemption.
A business that was genuinely outside the mandate last year can be inside it this year without doing anything differently. Hiring your first eligible employee is the usual trigger, and the spring assessment of your payroll filings is how the program finds out.
What Ignoring It Costs
The penalty is per eligible employee, and it keeps escalating. Once the board serves a final notice of penalty application, an employer that still fails to let its eligible employees participate, without good cause, owes $250 per eligible employee, plus an additional $500 per eligible employee if noncompliance continues (California Government Code 100033).
The Franchise Tax Board (FTB) runs the collection. Once the CalSavers board reports an employer as noncompliant, the FTB issues a first penalty notice, and unless the employer appeals, a second notice follows within 90 days (California Revenue and Taxation Code 19287). The first notice carries the $250, and the second carries the further $500.
The $500 is not a one-time charge. Under the program regulations, an employer that still has not complied after the initial $250 owes $500 per eligible employee for each later calendar year of noncompliance, and those years do not have to be consecutive (10 CCR 10008). The total has no ceiling.
The phrase doing the most work in Section 100033 is "serves a final notice of penalty application." The clock runs from the notice, not from the original deadline, so an employer who opens the mail and acts is in a completely different position from one who does not. Late is recoverable. Ignoring it is what converts a form into a bill.
How the Auto-IRA Works
The program enrolls employees automatically at a set deferral rate into a Roth IRA in their own name, funded from their own wages, and escalates that rate over time unless they intervene. Four defaults, set in the program regulations (10 CCR 10005), do almost all the work.
Contribution ceilings are the federal IRA limits, not plan limits, and that is the constraint that pushes ambitious savers elsewhere. The IRA limit rose to $7,500 for 2026 with a catch-up of $1,100 for savers age 50 and over, per IRS Notice 2025-67. Against a 401(k) deferral limit of $24,500 for the same year, the gap is roughly three to one.
Roth income limits apply too, because these are ordinary Roth IRAs. For 2026 the phase-out range runs from $153,000 to $168,000 for single filers and from $242,000 to $252,000 for married couples filing jointly, per IRS Notice 2025-67. Savers above those ranges have to recharacterize to a traditional IRA or opt out, and that is their problem to solve, not yours to spot.
Savers carry the program costs. Per the program fee schedule effective May 1, 2026, the total annualized asset-based fee runs between 0.225 percent and 0.39 percent of the account balance depending on fund choice, plus a fixed account fee of $3.50 per quarter. Employers pay nothing.
The program is still growing. CalSavers held 669,331 funded accounts as of September 30, 2026, up from 599,352 at the end of 2025, according to the participation snapshots published by the California State Treasurer.
Your Payroll Role, and Where It Stops
Your obligations are administrative and they are short. You register, you keep a roster current, and you move money that belongs to your employees. Everything past that belongs to the state.
The fiduciary point is the one to get straight, because it inverts the instinct most owners bring from anything labeled retirement. A fiduciary is the person legally required to manage retirement money in the savers' best interest.
The statute states that employers are not fiduciaries over the trust or the program, and are not liable for an employee's decision to participate or opt out, for investment decisions, for investment performance, or for program design and administration (California Government Code 100034).
That protection has an edge to it: it covers the program, not your payroll hygiene. The program regulations give you seven business days from the date of the deduction to get the money across (10 CCR 10003).
Money withheld from a paycheck and left sitting is your failure regardless of who is fiduciary of the account. It is the single operational risk in an otherwise low-risk obligation.
So log it. Two tabs, filled in every pay run, are the whole defense: one that dates each deduction against the day the money has to be gone, and one that records roster changes with the date they were entered.
| A | B | C | D | E | F | G | H | I | |
|---|---|---|---|---|---|---|---|---|---|
| 1 | Pay date | Pay period end | Date deducted | People in this run | Total withheld | Remit by | Date submitted | Confirmation reference | Notes |
| 2 | [MM/DD/YYYY] | [MM/DD/YYYY] | [same as pay date] | [count] | $ | [deduction date plus 7 business days] | Deadline runs from the deduction date, not the pay period end | ||
| 3 | $ | ||||||||
| 4 | $ | ||||||||
| 5 | $ | ||||||||
| 6 | $ | ||||||||
| 7 | $ | ||||||||
| 8 | $ | ||||||||
| 9 | $ |
There is also a soft cost nobody puts on the sheet: fielding the questions. Employees see a new deduction and ask you about it. The correct answer is to point them at the program, and the practical answer is to prepare one paragraph for your benefits materials and one for the onboarding packet so you write it once rather than every time someone asks.
Registering, Step by Step
Registration itself takes a short sitting once you have the access code. The sequence below is the whole obligation, start to finish.
Write down what you did and when, including which notice you were answering. The record below is the one thing that makes a later question answerable by a person who was not in the room for any of it.
Dwight SchruteSales3 people
Darryl PhilbinWarehouse1 person
Kelly KapoorCustomer Service1 personSponsoring a 401(k) Instead
Sponsoring your own plan discharges the mandate completely and changes what you are offering from access into compensation. It also moves you from a state-administered arrangement with no employer duties into a plan governed by the federal Employee Retirement Income Security Act (ERISA), where you are the sponsor and the fiduciary.
What you gain is capacity and control. The employee deferral limit for 2026 is $24,500 with a catch-up of $8,000 at age 50 and over, and a higher catch-up of $11,250 for savers age 60 through 63, per the IRS announcement of Notice 2025-67.
As the sponsor, you can also make employer contributions, attach a vesting schedule to them, and allow loans and rollovers. None of that exists in the state program.
What you take on is real. An ERISA plan brings an annual Form 5500 filing, participant disclosures, and genuine fiduciary duty over plan investments and fees.
It also brings annual nondiscrimination testing, which is exactly where small employers get caught. When the owners defer heavily and nobody else does, the plan fails, and correcting it usually means either extra employer contributions for everyone else or a taxable refund to the people who most wanted to save (26 CFR 1.401(k)-2).
Two design choices soften that. A safe harbor design trades a mandatory employer contribution for release from the annual nondiscrimination tests on deferrals and matching contributions. In the traditional version, that contribution is fully vested when made.
Automatic enrollment is the second: it puts staff into the plan by default instead of waiting for them to sign up.
SECURE 2.0 requires most newly established 401(k) plans to enroll employees automatically at 3 to 10 percent, rising 1 point a year to at least 10 percent, with exemptions for businesses under three years old or with 10 or fewer employees (26 U.S.C. 414A). If you were going to auto-enroll anyway, that requirement asks nothing extra of you.
How to Choose Between Them
The decision is not about which is the better retirement vehicle. It is about whether retirement saving is something you want to pay for.
| Dimension | State auto-IRA | Your own 401(k) |
|---|---|---|
| Employee deferral ceiling | $7,500 for 2026, plus $1,100 catch-up | $24,500 for 2026, plus $8,000 catch-up |
| Employer contribution | Not permitted | Optional, and deductible |
| Vesting schedule | None, the account is the employee’s | Available on employer contributions |
| Employer cost | None, no program fees | Plan fees, contributions, and administration |
| Fiduciary status | Employer is not a fiduciary by statute | Employer is the plan fiduciary |
| Annual filing | None | Form 5500 and participant disclosures |
| Nondiscrimination testing | Not applicable | Annual, unless a safe harbor design applies |
| Income limits | Roth IRA phase-out applies to high earners | No income limit on deferrals |
| Setup effort | Registration and a payroll deduction line | Plan document, provider selection, testing |
| Federal tax credits | None | Startup, auto-enrollment, and contribution credits |
Run the test in this order. Do you or your senior people want to defer more than the IRA limit? If yes, the state program cannot do it and a plan is the answer. Do you want retirement to work as compensation in hiring conversations? If yes, you need an employer contribution, which again means your own plan.
The two lists below turn that test into cases. The first covers when registering is enough, and the second covers when a plan is worth the cost.
The last reason to sponsor a plan, staff in several mandate states, is underrated. Every additional mandate state means another registration, another portal, and another remittance rhythm. One plan sponsored federally satisfies all of them at once, which changes the arithmetic for a distributed team in a way it never does for a single-state business.
Where Employers Get This Wrong
Five patterns, and the first one is the expensive one.
The first mistake is treating the notice as junk mail. The penalty schedule runs from service of the final notice, so the envelope is what starts the clock and answering it is what stops it.
The second is assuming a 401(k) makes the paperwork disappear. Sponsoring a plan removes the duty to run deductions, not the notices, which keep arriving until you certify the exemption even though the regulations leave certifying optional.
The third is believing part-time or seasonal staff do not count. The eligible employee definition turns on age and California W-2 wages, not on hours or tenure, so a summer hire counts the same as a full-year one.
The fourth is holding withheld contributions. The seven business day window applies to money already taken out of wages, and it is the one place in this obligation where an ordinary payroll delay becomes a real problem.
The last is treating registration as a one-time event. The state reassesses employer status annually from payroll filings, so a business that was outside the mandate can be inside it the following year without anything changing on its side except a hire.
Nick Anisimov, FirstHR founder
Frequently Asked Questions
Who has to register for CalSavers?
Any California employer that averages one or more eligible employees and does not sponsor a qualifying retirement plan. An eligible employee is someone aged eighteen or older who earns W-2 wages for work done in California, so part-time, seasonal, and short-tenure staff all count toward the test. The ways out are specific: you are excused if you already provide an employer-sponsored retirement plan such as a defined benefit plan, a 401(k), a simplified employee pension (SEP), or a SIMPLE plan, or if you offer an automatic enrollment payroll deduction IRA. Sole proprietors and partnerships with no employees besides the owners, government entities, religious organizations, and tribal organizations also fall outside the mandate. Every other employer either registers or certifies an exemption.
What is the CalSavers registration deadline?
The final statutory deadline was December 31, 2025 under Government Code 100032, so the phased rollout is finished. That last phase reached employers with as few as one eligible employee, and the earlier phases for larger employers closed in 2020, 2021, and 2022. An employer covered by any of those phases that never registered is out of compliance today rather than facing a future date. The deadline that still matters is the rolling one. Every spring the program looks at the four quarterly payroll filings you sent the Employment Development Department for the prior year and averages them to find newly eligible employers. Those employers get registration information by mail or email that spring, and they have until December 31 of that year to register or certify an exemption.
What are the penalties for not registering?
The penalty is $250 per eligible employee, with a further $500 per eligible employee if the failure continues, under Government Code 100033. Nothing is owed until the CalSavers board has served a final notice of penalty application and referred the employer to the Franchise Tax Board (FTB). The FTB then sends a first penalty notice, and unless the employer appeals, a second one follows within 90 days under Revenue and Taxation Code 19287. After that, the program regulations add another $500 per eligible employee for every later calendar year the employer stays out of compliance, so there is no cap and an ignored letter can grow into a four or five figure bill. Collection runs through the state tax agency instead of a lawsuit, which means an employer who has never dealt with a regulator can still find the liability on its account. Each step starts with a notice, and answering that notice is what stops the process.
Do employers have to contribute to CalSavers?
No, and they are not permitted to. Every dollar in a CalSavers account comes from the saver, through payroll deferrals or optional contributions made outside payroll. There is no employer match, no nonelective contribution, and no employer-side program fee. This is the structural difference between the state program and a 401(k): what you are providing is access and payroll plumbing, not a benefit you pay for. It also means the program buys you very little in recruiting terms, because a candidate comparing offers sees a deduction from their own pay rather than money from you. If you want a retirement benefit that helps you compete for hires, you need your own plan with an employer contribution attached to it.
What is the default CalSavers contribution rate?
5 percent of gross pay, with automatic escalation of 1 percentage point each January until the rate reaches 8 percent. The default account is a Roth IRA, so contributions are made after tax, and initial contributions sit in the program money market fund for 30 days before moving to a target retirement fund based on the saver’s age. Savers can override every one of those defaults: they can set any rate they want, recharacterize to a traditional IRA, choose different funds, or opt out entirely. Higher earners who exceed the federal Roth income limits need to act, because the program cannot police individual tax situations. None of these choices are the employer’s to make or to advise on.
Can employees opt out of CalSavers?
Yes, at any time, and the program is built around that. After you add someone to the roster, they get a 30 day window to customize their account or decline before any deduction begins. Someone who does nothing is enrolled at the default rate. Employees can also opt out after contributions have started. Under the regulations, their deductions must stop no later than the first payroll period that follows 30 days after they notify the program. One detail employers miss: Government Code 100032 lets the board designate an open enrollment period at least once every two years, in which employees who previously opted out are handed the information packet and opt-out form again, so a staff member who declined can be asked a second time. Your job is to pass the notification along, never to encourage or discourage participation.
Is a 401(k) better than the state program?
Not automatically, because a 401(k) wins only for specific reasons. It raises the employee deferral ceiling to $24,500 for 2026 against an IRA limit of $7,500, lets you make employer contributions with a vesting schedule, and supports loans and rollovers. It also brings ERISA status, an annual filing, real fiduciary duty, nondiscrimination testing, and per-participant costs. The state program has none of that and costs you nothing. The honest test: if you and your senior people actually want to defer more than the IRA limit, or you want retirement to function as compensation, sponsor a plan. If neither is true, register and move on.
How does the CalSavers exemption work if I already have a 401(k)?
A qualifying plan exempts you from the program, but you should still tell the program about it, even though the regulations make that step optional for an exempt employer. Sponsoring the plan ends your duty to run payroll deductions into CalSavers, but it does not take you out of the assessment the program runs each spring against payroll filings, and the program asks employers who receive a notice to report the exemption so the notices stop. The certification is made through the employer portal, you select the reason, and supporting documentation may be requested depending on the reason given. Other exemption grounds include closing or selling the business, having no employees other than the owners, and being a government, religious, or tribal organization. Treat the certification as a recurring administrative task, not a one-time event.
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