California Retirement Mandate: What Small Business Employers Need to Know

The final deadline for California’s retirement savings mandate is approaching. Small businesses looking for a retirement plan in California need to be ready.  

California workers have more than one way to save for retirement. In addition to traditional 401(k) plans, the state offers CalSavers—a program designed for employees who don’t have access to a workplace retirement plan. CalSavers helps make it simple for workers to start saving.

As a small business employer, it is important to note that California law requires non-exempt businesses to provide access to retirement savings benefits.  

Larger employers have already had to meet these requirements. By December 31, 2025, businesses with as few as one to four employees are also required to offer retirement benefits—either through a qualified plan like a 401(k) or enrolling employees in CalSavers.

Before you decide which option is right for your business, consider factors like compliance responsibilities, flexibility, and how benefits fit into your overall strategy.

Key Takeaways for Employers

• Deadline: Non-exempt businesses with 1–4 employees must offer employees retirement benefits by Dec. 31, 2025.

• Options: Offer a qualified plan (like a 401(k) or SIMPLE IRA, or SEP Plan in California) or enroll in CalSavers.

• Penalties: Noncompliance can cost $250 per employee, increasing to $500 for continued violations.

• Employee Eligibility: Most employees can participate if they meet company rules (age, service, hours).

What is CalSavers?

CalSavers is California’s state-facilitated retirement savings program, designed for employees without access to a workplace plan. It’s structured as a Roth IRA and automatically enrolls employees at a 5% contribution rate unless they opt out. Employees can change their contribution or opt out anytime.

Who Must Comply—and When?

California businesses that do not comply with the state’s retirement savings mandate may face significant penalties.  

Penalties for Noncompliance

• $250 per employee for initial violation

• $500 per employee for continued noncompliance
  Employers must also comply with ERISA fiduciary rules and avoid conflicts of interest.

To avoid these fines, employers should evaluate available retirement plan options and ensure they meet the mandate requirements.

Employer Deadlines

• 100+ employees: Sept. 30, 2020 (passed)

• 50+ employees: June 30, 2021 (passed)

• 5+ employees: June 30, 2022 (passed)

• 1–4 employees: Dec. 31, 2025

Employers can choose CalSavers or offer a qualified plan like a 401(k), SIMPLE IRA, or SEP plan in California. If you already offer a plan, you must register for a CalSavers exemption through the state portal.

401(k) Basics for California Employers

A 401(k) is a tax-qualified plan that allows employees to save pre-tax or Roth dollars. Benefits can include:

• Attracting and retaining talent

• Employer tax benefits and tax credits for offering retirement plans

• Owner participation

• Easy administration when integrated with payroll

Employee Advantages

• Tax-deferred savings

• Flexible contributions

• Catch-up contributions for those 50+

A 401(k) calculator can help employees plan contributions over the course of their working years.

Eligibility Rules

Employees can enroll in a 401(k) if they meet company criteria (age, service, hours). Offering a 401(k) satisfies the state mandate and helps employees save through payroll deductions.

Other Alternatives to CalSavers

Employers can opt out by offering:

• 401(a)

• 401(k)

• 403(a)

• 403(b)

• 408(k)/Simplified Employee Pension (SEP) Plan

• 408(p)/SIMPLE IRA

• 457(b)

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What’s the Difference Between CalSavers, SIMPLE IRA, and a 401(k)?

When choosing a retirement plan for your California business, it’s important to understand key differences:

• Company Match: 401(k) and SIMPLE IRA plans often allow employer contributions, which can help attract and retain talent. CalSavers does not allow for employer contributions of any kind.

• Contribution Limits: 401(k) plans have the highest annual limits, giving employees more room to save. SIMPLE IRAs have lower limits, and CalSavers (a Roth IRA) has the lowest.

• Tax Credits: Employers offering a qualified plan like a 401(k) or SIMPLE IRA may be eligible for tax benefits and credits under federal law.

• Administration: SIMPLE IRAs and 401(k)s typically involve working with a third-party administrator or payroll provider, making compliance easier. CalSavers places most administrative responsibility on the employer.

Are Employers Required to Offer a 401(k) in California?

Not necessarily—but every eligible business must provide access to some type of retirement program. That can be CalSavers, a 401(k), or another qualified plan such as a SIMPLE IRA. The key is meeting the state mandate by the applicable deadline.

Sure401k®: 401(k) Plans Built for Small Business Owners

SurePayroll® By Paychex can help you set up a 401(k) for your business. Call 866-497-2028 to learn more about small business 401(k) plans today.  

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