CA Business Owners: New Retirement Requirement for Employers (UPDATE!)

CalSavers used to be a “coming soon” item on a California employer’s to-do list. It isn’t anymore. The final phase-in deadline passed on December 31, 2025, which means that if you have even one W-2 employee in California and no retirement plan, the requirement applies to you today.

CalSavers is a state-run retirement savings program for people whose employers don’t offer a plan. Employees contribute through payroll into a Roth IRA, which means after-tax contributions that grow tax free. There is no employer contribution or match, and no fee to you as the employer.

• Employees are enrolled automatically at 5% of gross pay, rising 1% each January until it reaches 8%, unless they opt out or choose a different rate
• Employees pay a small annual fee on their balance, under 1%
• The 2026 Roth IRA limit is $7,500, or $8,600 for savers age 50 and older

The original rollout started with the largest employers and worked down. The last group, businesses with one to four employees, had until the end of 2025. Here is how it sorts out now:

Your Situation	What to Do
At least one W-2 employee in California, no retirement plan	Register with CalSavers, upload your employee roster, and start payroll deductions
You already offer a 401(k), 403(b), SEP-IRA, SIMPLE IRA, or similar plan	You are exempt, but you still have to report that exemption on the CalSavers portal. Having a plan does not count unless you tell them
Only owners, no other employees	Exempt from the mandate. This includes sole proprietors and entities where the owners are the only people on payroll
Only 1099 contractors	Contractors do not count, but be sure they really are contractors

That last row deserves a second look. If your contractors are really employees under California’s rules, you may have a CalSavers obligation you haven’t accounted for, along with bigger problems. Our guide to employee vs. contractor classification walks through the tests. And if you run an S-corp and pay yourself a salary, our post on salary vs. owner’s draw covers how that payroll fits together.

• Register on the CalSavers employer portal and keep your employee roster current (name, Social Security or ITIN, date of birth, and contact information)
• Add new hires within 30 days of their start date
• Deduct each saver’s contribution every pay period and send it in within seven days of payday
• Do not choose investments, contribute your own money, or give advice to employees about the program

Offering a plan is optional. Telling the state you offer one is not.

Penalties are assessed per eligible employee, and they escalate if you ignore a notice. After the CalSavers Board notifies the Franchise Tax Board that you are out of compliance, the FTB sends a notice. If you are still not compliant 90 days after that notice, the penalty is $250 per eligible employee. If it continues past 180 days, another $500 per eligible employee can be added.

For a business with four eligible employees, that adds up to as much as $3,000. The good news is that penalties can be appealed in writing to the FTB, and they can be waived when the employer shows good cause. The worst thing you can do is ignore a notice. Registering promptly, even late, is the clearest way to limit your exposure.

Feature	CalSavers	401(k)
Employer cost	None	Set-up and admin fees
Employer match	Not allowed	Optional
Tax treatment	Roth (after-tax)	Pre-tax or Roth
2026 employee limit	$7,500 ($8,600 if 50+)	$24,500

CalSavers is a perfectly good floor for a team that has nothing today. A 401(k) or similar plan costs more to run, but it lets employees save far more, lets you match contributions, and can help with hiring and retention. Small employers may also qualify for a federal tax credit that offsets the cost of starting a plan, which is worth raising with your CPA before you decide.

The rules around CalSavers are still moving. Lawmakers have proposed further changes, including a higher cap on the automatic contribution increases, so it is worth checking the CalSavers site for the latest before you finalize anything.

If you run a California business, whether you are in Placerville, El Dorado Hills, or anywhere else in the state, we are happy to help you work out which situation applies to you and what to do about it.