California Mandatory Retirement Plan: What Employers Need to Know

California passed a law requiring every private employer to either offer a qualified workplace retirement plan or sign up for CalSavers. The California mandatory retirement plan covers millions of workers who had no access to retirement savings through their job. 

If you run a business in California with even one employee, this applies to you. This article breaks down who must comply, how to register, what the penalties are, and how to pick the right path forward.

What Is the California Mandatory Retirement Plan and Why Is It Mandatory?

The California mandatory retirement plan is a state-run savings program called CalSavers. It exists because roughly 7.5 million California private-sector workers had zero access to retirement savings at their workplace, which led the state to act.

California law now mandates that every private employer with at least one employee must either:

• Offer an IRS-qualified retirement plan (like a 401(k) plan or SIMPLE IRA), or
• Register with CalSavers

There are no employer fees in CalSavers, employer contributions, or fiduciary responsibility. The state kept employer duties as light as possible on purpose, so small businesses have no reason to skip them.

Who Must Comply With CalSavers in California?

Every California private-sector employer with at least one employee should comply with the mandatory retirement plan in California unless they already sponsor a qualifying plan. The registration deadline depends on how many people you employ.

Employer Eligibility Criteria

If your business recently grew to five or more employees, you must register with CalSavers by the end of that calendar year. The same rule applies if you previously offered a private plan and then discontinued it.

Employee Eligibility Requirements

Not every worker on your payroll gets auto-enrolled on day one. An employee must meet all three criteria below to qualify:

• Must be at least 18 years old
• Must be based in California
• Must have worked for you for at least 30 days

Eligible employees get auto-enrolled at a 5% default savings rate into a Roth IRA. That rate goes up by 1% each year until it reaches 8%, unless the employee sets a different rate themselves.

Businesses Exempt From the Mandate

You are exempt if you currently sponsor one of these IRS-qualified plans:

• 401(k) plan
• SIMPLE IRA
• SEP-IRA
• Pension or defined benefit plan
• 403(b) plan

Federal government employers are also exempt. Sole proprietors with zero W-2 employees are not subject to the mandate either.

Steps To Set Up and Manage Compliance the Right Way

The California mandatory retirement plan through CalSavers keeps employer duties minimal. Registration happens online and takes less time than most payroll updates. Here is how the process works, step by step.

1. Register with CalSavers: Go to employer.calsavers.com. You will need your federal EIN and your California employer account number to create your account.
2. Provide your employee roster: Upload a list of all eligible employees. CalSavers sends enrollment notices directly to workers on your behalf.
3. Set up payroll deductions: Connect your payroll system to deduct each enrolled employee’s contribution per pay period. Most major payroll platforms, including ADP and Paychex, already have CalSavers built in.
4. Notify employees: Inform your team that they are being auto-enrolled. Employees have 30 days to opt out if they choose not to participate.
5. Maintain ongoing reporting: Update your roster within 30 days whenever an employee is hired or leaves. Keep deduction amounts accurate each pay cycle.

Who Is Exempt From the California Mandatory Retirement Plan?

An employer is exempt from the California mandatory retirement plan if they actively maintain a qualifying retirement plan. “Actively” does not apply to a plan you closed two years ago.

Qualifying plans that grant exemption:

• An active 401(k) plan registered with the IRS
• A SIMPLE IRA in good standing
• Any IRS-qualified pension or defined benefit plan
• A SEP-IRA is currently in use

If you are unsure whether your current plan qualifies, consult a retirement planning advisor before assuming you are exempt. An incorrectly assumed exemption leads to penalties. The CalSavers team also has a Client Services line that can confirm your status.

What Are the Penalties for Non-Compliance?

Ignoring the mandatory retirement plan in California is expensive. The California Franchise Tax Board enforces penalties through the CalSavers program.

• $250 per eligible employee if non-compliance continues 90 days after receiving a formal penalty notice
• $500 per eligible employee if the employer still has not complied after 180 days

A business with 12 employees that misses both windows owes $6,000 in penalties, not counting any interest or additional enforcement action. CalSavers sends written notices before any penalty applies.

How To Choose Between CalSavers and a Private Retirement Plan

The mandatory retirement plan in California gives you two options: enroll in CalSavers or offer a private, qualified plan. The right call depends on your business size and goals.

For a small business with under 10 employees, CalSavers is the practical choice. For a growing company that wants to attract and keep good employees, the right retirement plan, like a 401(k) plan or SIMPLE IRA, adds a real recruiting edge.

A solid retirement planning strategy means comparing your current payroll costs, tax situation, and hiring goals before you decide. Tax planning for retirement through a private plan sometimes saves employers more in deductions than they spend on plan administration.

Employer Responsibilities (Ongoing)

Whether you use CalSavers or a private plan, ongoing compliance duties do not disappear after setup.

For CalSavers:

• Update your employee roster within 30 days of any hire or departure
• Process payroll deductions accurately each pay period
• Handle opt-out and opt-back-in requests correctly
• Respond to CalSavers compliance notices within the deadline

For a private plan:

• File Form 5500 annually with the IRS (required for most plans)
• Fulfill fiduciary duties and investment oversight
• Conduct plan audits if plan assets exceed certain thresholds

Common Mistakes California Employers Should Avoid

Employers dealing with the California mandatory retirement plan make the same errors repeatedly. These are the ones that end up costing the most.

• Assuming exemption without proof: If you offered a 401(k) two years ago and shut it down, you are no longer exempt. You need to register.
• Not updating your employee roster: Failing to add new hires within 30 days creates compliance gaps.
• Ignoring opt-out requests: Employees who request to opt out within 30 days must be processed. Not doing this is a recordkeeping violation.
• Skipping employee notification: Auto-enrollment does not replace the legal requirement to inform employees.
• Confusing CalSavers with a full retirement plan: CalSavers is a Roth IRA, not a 401(k) plan. Employees contribute. Employers do not match. If your workforce expects a right retirement plan with employer matching and tax perks, CalSavers alone will not cut it.

How To Stay Ahead of Retirement Plan Compliance in California

California has expanded mandatory requirements for retirement plan coverage over time and will likely continue to do so. 

Here is what proactive employers do year-round:

• Audit your headcount every January: If you crossed the 5-employee threshold, confirm your registration status.
• Track plan changes immediately: If you switch, pause, or terminate a private retirement plan, note your new CalSavers registration deadline.
• Work with a retirement planning advisor: An advisor can confirm your exemption status and flag whether a private plan offers better tax planning for retirement benefits for your business size.
• Build your retirement planning strategy before a deadline: Last-minute compliance always costs more, in time and sometimes in penalties.
• Set quarterly roster reminders: Employee turnover is the top reason CalSavers compliance slips.

Staying organized with the mandatory retirement plan in California is cheaper than paying $250 or $500 per employee to fix avoidable lapses.

Fix Retirement Compliance with SWAT Advisors

California’s mandatory retirement plan is a compliance trigger with real financial consequences. Employers must either implement a qualified retirement plan or register with CalSavers, or face escalating penalties that compound per employee. The smartest move is strategic retirement planning that aligns payroll, tax efficiency, and employee retention into one system. 

Ar SWAT Advisors, we audit your eligibility, design IRS-qualified plans like 401(k) or SIMPLE IRA, optimize tax deductions, and ensure full compliance with state mandates. We integrate retirement planning into your broader financial structure so you gain a competitive edge in hiring and retention. Contact SWAT Advisors today.

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