The CalSavers Exemption: Sponsor Your Own Plan Instead

Every California employer employing at least one W-2 employee has two options. It can either register for CalSavers or provide a qualified retirement plan, and sponsoring your own plan is the exemption. To get this exemption adopt a SIMPLE IRA, SEP IRA, or 401(k), and then certify that you are an exempt employer using the CalSavers employer portal. The mandate will be eliminated from being applied to you as well as the penalty clock will cease when your status of exemption is recorded with the state. IRAPilot provides a simple way to set up a SIMPLE IRA in approximately 10 minutes of your time. It also guides you through the certification process step-by-step and continues to remind you until the state record shows you exempt.

Is CalSavers mandatory?

Yes, legally speaking. Ignoring it is against the law. SB 1126 states that all employers within the State of California who have one or more eligible employees must take action.^[1] Not mandatory, however, is the state program itself: you do not have to enroll in CalSavers. Sponsoring a qualified plan is the only way for your business to be paid back as part of the legal paths.

The state of California sets a fine in Government Code Section 100033: $250 for every eligible employee once a Franchise Tax Board notification goes unanswered, and an additional $500 for every eligible employee if non-compliance continues, with the total being $750.^[2] If you don't take action on the initial notice, you can receive another one each year until you comply. Some other negative aspects of using this program include the permanent administrative burden as an employer, the no-match rule and the Roth-only accounts, all explained in detail in the full CalSavers guide.

How does CalSavers compare to a SIMPLE IRA?

CalSavers allows businesses to comply with California's mandate by having employers run roster updates and payroll remittances each pay cycle, while capping employees' total savings in their account at the maximum amount that may be contributed to an individual IRA in a Roth-only account, without allowing any employer match. On the other hand, a SIMPLE IRA provides a complete exemption from the state program. Under a SIMPLE IRA, eligible employees are permitted to defer as much as $17,000 of their own pay in 2026,^[3] and the employer adds a 3% match or a 2% nonelective contribution. Federal start-up tax credits typically cover the plan's cost for three years. Therefore, both options keep you legal, but only one option (a SIMPLE IRA) pays you back:

The SIMPLE IRA side of that table, including how the plan works and the employer match rules, is covered across the guide library, starting with What Is a SIMPLE IRA?

How do you get exempt from CalSavers?

To get exempted from CalSavers you need to have two things: sponsor a Qualified Retirement Plan (QRP), and certify your exemption on the CalSavers Employer Portal. Small businesses in California typically choose a SIMPLE IRA, established on Form 5304-SIMPLE or Form 5305-SIMPLE, but a SEP IRA or 401(k) will be treated identically for compliance purposes. The step many employers miss is the certification process after they establish their QRP. Establishing a plan without filing it means the FTB views them as non-compliant, so the penalty clock continues to run until there is documentation of the exemption on the portal. There are four steps to become exempted and IRAPilot will guide you through each of them:

1. Answer ten questions

   We design your SIMPLE IRA and provide you with the tax-credit calculations. Then you electronically sign the IRS plan documents (Form 5304-SIMPLE or 5305-SIMPLE) and there are no paper copies sent in the mail.

2. Your team enrolls online

   Employees open their own accounts at a qualified custodian as directed in the instructions we provide. We determine who is eligible and create every document that must be provided to employees.

3. Payroll runs like normal

   You withhold the deferrals from your payroll and you forward that money to the custodian every pay cycle. We track the 7-business day deposit window and send you a reminder prior to closing of this time frame.

4. Certify your exemption

   You complete the certification of exemption using the CalSavers employer portal. We provide you with a step-by-step process and what to input, and we will follow up with you until the State records show that your exemption has been certified.

The IRS will help pay for it. For all employers, that have 50 or fewer employees, the SECURE 2.0 start-up credit covers 100% of plan expense, up to $250 in expenses per eligible non-owner employee each year (maximum total: $5,000) for the first three years.^[4] One specific date is important: A SIMPLE IRA generally needs to be established by October 1 of the current tax year, so do not sit on a penalty notice waiting for January.

The Bottom Line

An employer may legally opt out of CalSavers via the employer's exemption. A Qualified Plan such as a SIMPLE IRA, certified on the State Portal, will end the Mandate. If both are missed, the Franchise Tax Board Penalty will reach $750 per Eligible Employee. Since a SIMPLE IRA typically must be in existence by October 1, an un-answered notice is a time-clock for an employer, not an opportunity for warning or relief. Certify and adopt your Simple IRA before the clock runs out.

This guide is educational and summarizes IRS rules for SIMPLE IRA plans. It is not investment, legal, or tax advice. Your plan documents and current IRS limits control. Talk to your tax advisor about your business's circumstances.