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California will begin implementing its mandatory auto-enroll retirement program, called CalSavers, on July 1, 2019, with the first wave of employers, those with 100 or more employees, required to register by June 30, 2020. During the three-year phased rollout, employers that do not offer a retirement plan to employees will be required to register to participate in the state's auto-enroll retirement program.

Eventually, all employers with five or more employees that do not offer a retirement plan will be required to participate in the CalSavers program. Employers with 100 or more employees must register to participate by June 30, 2020; those with 50 or more employees by June 30, 2021; and those with five or more employees by June 30, 2022. Employers with fewer than five employees are exempt. Employers of all sizes can register for the program beginning in July 2019, but must register no later than the required deadline. Employers will be notified when it is time for them to register. Employers may choose now to participate in the CalSavers pilot program.

The CalSavers account is an after-tax Roth IRA. There are no fees for employers to participate in the program. Thirty days after employers register and submit employee details, employees age 18 or older will be auto-enrolled and employers will begin payroll deductions at an initial rate of 5% of gross pay on an after-tax basis. Each year thereafter, unless the employee chooses otherwise, the contribution rate will increase by 1% until it reaches 8% (note that contributions are subject to IRS limits (i.e., in 2019, the Roth IRA contribution limits are $6,000 per year or $7,000 if age 50 or older, as long as the employee earns at least $6,000 in wages).

Employees may change the withholding rate or opt out of the program at any time. Employers cannot make matching contributions.

Ernst & Young LLP insights

Oregon was the first of seven states (California, Connecticut, Illinois, Maryland, New York, Oregon, and Vermont) to begin implementing state legislation passed to institute state-run programs for private-sector employers without a retirement plan. New Jersey and Washington enacted legislation that would establish a small-business retirement marketplace where employers may voluntarily establish a payroll-deduction IRA plan for employees wishing to participate. Employers are not required to match any portion of their employees' contributions.

Legislation enacted in 2012 and reauthorized in 2016 (SB 1234) established the California CalSavers program. California joins Oregon (starting in November 2017) and Illinois (starting in November 2018) in implementing their auto-enroll retirement program.

See our report for more information.

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