CalSavers: The Downsides for Employers, and How a SIMPLE IRA Gets You Exempt

CalSavers is California's state-run retirement program. Therefore all employers that have at least one eligible employee are required to be registered with CalSavers or sponsor a qualifying retirement plan of their own. Sponsoring your own retirement plan (such as a SIMPLE IRA) exempts you from CalSavers requirements completely. However, ignoring the mandate will be by far the most expensive route since Franchise Tax Board penalties for noncompliance reach $750 per eligible employee.

What is left unstated by these promotional materials: the registration of your company to participate in a plan with permanent, unpaid payroll administration which limits employee contributions to the personal IRA limit, does not allow for employer matching contributions and requires all participants earning above a certain level to be automatically enrolled into a Roth account which they may not be eligible for. IRAPilot sets up an exempting SIMPLE IRA in about 10 minutes instead.

What is CalSavers and what does it require from employers?

CalSavers is a mandatory state-run Roth IRA automatic enrollment program. If you do not have your own retirement plan, you will need to enroll in the program, add all of your eligible employees, and at every pay cycle you will need to calculate, withhold, and remit the deduction for each of your enrolled employees. All other eligible employees that do nothing will be automatically enrolled into the CalSavers plan, with the rate escalating each year unless they elect to opt-out. As such, the last deadline, for employers with 1 to 4 employees, passed on December 31, 2025, so there is no longer a deadline to wait for.

Under SB 1126, if you have one or more eligible W-2 employees in California, the obligation applies.^[1] Enforcement runs through the Franchise Tax Board, and Government Code Section 100033 sets the penalty at $250 per eligible employee once a notice goes unanswered, plus another $500 if noncompliance continues, for $750 in total.^[2]

What are the cons of CalSavers for employers?

The biggest disadvantages of CalSavers for businesses are they have to administer their payroll permanently and without compensation, cannot provide any match, and employees can save through the program up to the personal IRA limit as opposed to the $17,000 a SIMPLE IRA allows in 2026^[3] as per the contribution limits. Registering means you will have to maintain rosters, handle any changes to deductions and meet remittance deadlines every pay run, and there is no end date for this. The start-up credits available to plan sponsors also do not apply to those businesses which simply allow their employees to use the program. The specifics of these drawbacks:

Sponsoring a SIMPLE IRA or another qualifying type of plan is the only path that makes you completely exempt from CalSavers, rather than trading a penalty for permanent payroll work.

How does a SIMPLE IRA make you exempt from CalSavers?

California's mandate is not "join CalSavers," it's "have a retirement plan." Any qualifying employer-plan (SIMPLE IRA, SEP IRA, 401(k)) exempts your business completely and once the plan is adopted and the exemption certified then the registration responsibility, remittance work, and penalty liability all stop. For teams of 1 to 25, the SIMPLE IRA usually will be the right exempting plan. Here is how the two compare:

As the start-up credit covers 100% of administrative costs, up to a maximum of $250 for each eligible non-owner employee per year for three years for companies of 50 employees or less,^[4] most smaller teams find the SIMPLE IRA essentially no-cost. The comparisons of plans are in Small-Business Retirement Plans Compared.

How do you get exempt from CalSavers step by step?

To get an exemption from having to create a CalSavers retirement account, employers need to complete two actions that work together: establish a qualifying plan and certify the exemption with the state. Until the employer has certified their exemption, the employer will continue to have the mandate and be subject to the penalty clock. If an employer sponsors (establishes) a plan but does not certify the exemption with the state, they are still considered non-compliant by the state. For most small businesses, establishing a qualifying plan means adopting a SIMPLE IRA. In addition to being easy to establish, a SIMPLE IRA can be adopted using Form 5304-SIMPLE or Form 5305-SIMPLE and can typically be set up in approximately 10 minutes via IRAPilot. IRAPilot also guides users through the certification process of the qualifying plan when it goes into effect and prepares all necessary notices, tracks deposit deadlines and limits, and will remind the user prior to each deadline. Note one important date: A SIMPLE IRA must generally be adopted by October 1 for the plan to qualify for purposes of counting toward the current year's requirements. Therefore, if an employer delays adoption of a SIMPLE IRA, they may find themselves required to administer CalSavers for several months before they can begin administering their own SIMPLE IRA. The steps involved in obtaining an exemption are found at the CalSavers exemption guide.

The Bottom Line

CalSavers is California's default retirement program. Every employer with an eligible (W-2) worker must either enroll in CalSavers, or adopt and maintain their own plan. If you do nothing, you may be charged up to $750 per worker. While registering avoids that penalty, it means unpaid payroll work forever, a "no-match" provision, and IRA-level contribution limits. A SIMPLE IRA exempts you, lets you match, and is usually credit-covered for three years. Adopt one and certify before the next notice becomes a penalty.

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.