Is a 401(k) Mandatory for Employers in California?

No, California does not require employers to offer a 401(k). What state law does require is that every employer with at least one W-2 employee either sponsor a qualified retirement plan or register for CalSavers, the state-run retirement savings program.¹ A 401(k) is one way to satisfy that requirement. It is not the only way, and it is not mandatory.

What California Actually Requires

Under the California Secure Choice Retirement Savings Trust Act, employers that don’t offer their own retirement plan must register with CalSavers and set up payroll deductions for their workers.¹ The mandate covers any California employer with one or more employees who receive a W-2. Sole proprietors with no staff are excluded.²

The trade-off to understand: CalSavers costs you nothing in contributions or fees, but you take on an administrative role uploading employee rosters, processing payroll deductions, and remitting funds.³ You are not a fiduciary, you don’t select investments, and you don’t manage the accounts. A 401(k) or similar qualified plan takes more work and money on the front end but gives you and your employees a much larger savings vehicle.

Which Plans Exempt You From CalSavers

Sponsoring any of these qualified retirement plans exempts your business from the CalSavers mandate:²

401(k) plans, including multiple employer and pooled employer plans
403(a) or 403(b) plans
401(a) qualified plans, including profit-sharing and defined benefit plans
SEP IRAs (Simplified Employee Pension)
SIMPLE IRAs (Savings Incentive Match Plan for Employees)
Payroll deduction IRAs with automatic enrollment

A regular payroll deduction IRA without automatic enrollment does not qualify. If your business already sponsors one of the plans above, you don’t register with CalSavers, but you do need to certify your exemption through the CalSavers employer portal so the program stops sending compliance notices.

Registration Deadlines

CalSavers rolled out in phases based on employer size. Every original deadline has now passed except one:

100+ employees: September 30, 2020
50+ employees: June 30, 2021
5+ employees: June 30, 2022
1–4 employees: December 31, 2025

If your business falls into any of the first three tiers and you haven’t acted, you’re already out of compliance and can be penalized.¹ Legislation passed in 2022 extended the mandate to the smallest employers, giving businesses with one to four employees until the end of 2025 to register or start offering their own plan.⁴

New businesses that hit the one-employee threshold have 90 days to register after reaching it.²

Penalties for Doing Nothing

The CalSavers Retirement Savings Board works with the Franchise Tax Board to enforce the mandate. After multiple mail and email notifications, non-compliant employers face escalating financial penalties.⁵

First penalty notice: $250 per eligible employee.
Still non-compliant 90 days later: an additional $500 per eligible employee, for $750 per employee total.
Continued non-compliance: annual notices adding another $500 per employee until the employer registers or offers a qualifying plan.⁶

For a business with 20 employees, the first round alone runs $15,000. Penalties keep accruing until you comply.

What CalSavers Costs and Requires of You

Employers pay no fees to CalSavers and make no contributions to employee accounts.³ Your obligations are entirely administrative.

Within 30 days of registration, upload a roster of eligible employees to the CalSavers portal. For each new hire after that, submit their information within 30 days of their start date.⁷ The roster includes each employee’s Social Security number or ITIN, name, date of birth, and physical address. Phone numbers and email addresses go in when available.

Once employees are enrolled, deduct contributions from each paycheck and remit them to CalSavers. The default contribution rate is 5% of gross pay, escalating 1% per year up to 8% unless the employee changes it.⁸ You also need to inform employees of their right to adjust their rate or opt out.

Why Some Employers Choose a 401(k) Anyway

CalSavers satisfies the state mandate, but as a retirement benefit it is much smaller than a 401(k). The biggest reason is contribution capacity. CalSavers accounts are Roth IRAs, so they follow IRA limits: for 2026, that means $7,500 per year, with an additional $1,100 catch-up for savers 50 and older.⁹ A 401(k) lets employees defer up to $24,500 in 2026, with an $8,000 catch-up for those 50 and older and an $11,250 catch-up for ages 60 through 63.¹⁰

Other practical differences:

CalSavers contributions are Roth (after-tax) only. A 401(k) can offer both pre-tax and Roth options.
CalSavers does not allow employer matching. A 401(k) does, and employer matches are tax-deductible business expenses.
CalSavers is free for employers. A 401(k) involves administrative fees.
As a Roth IRA, CalSavers has income phase-outs that can disqualify higher-earning employees from contributing. A 401(k) has no income limit on contributions.

Federal Tax Credits Can Offset a 401(k)

If cost is what’s pushing you toward CalSavers by default, the SECURE 2.0 Act offers two credits worth checking. Employers with 50 or fewer employees can claim a credit for 100% of qualified plan startup costs for the first three years, up to $5,000 per year, capped at $250 per non-highly-compensated employee. Employers with 51 to 100 employees qualify at a 50% rate.¹¹¹²

Separately, employers with up to 50 employees can claim a credit for employer contributions of up to $1,000 per employee earning less than $100,000. That credit runs for five years on a declining schedule: 100% in years one and two, 75% in year three, 50% in year four, and 25% in year five.¹¹

If You Start a New 401(k), Federal Auto-Enrollment Applies

Employers who decide to open a 401(k) should know about a separate federal rule. Under the SECURE 2.0 Act, any 401(k) or 403(b) plan established after December 29, 2022, must automatically enroll eligible employees at a default contribution rate between 3% and 10% of compensation. The rate must increase by at least 1% per year until it reaches at least 10%, with a ceiling of 15%. Government and church plans are exempt.

This is separate from and in addition to California’s CalSavers mandate. CalSavers auto-enrollment starts at 5% and caps at 8%; a new 401(k) starts between 3% and 10% and escalates to at least 10%.

How to Register or Certify an Exemption

Everything runs through the CalSavers employer portal. To register, you’ll need your Federal Employer Identification Number (or Tax Identification Number), your California payroll tax number, and a CalSavers access code sent by mail or email. If you never got an access code, you can request one through the portal.³

If your business already sponsors a qualifying plan, use the same portal to certify your exemption instead of registering. You’ll provide details about the existing plan.² Certifying is worth doing even when you’re sure CalSavers doesn’t apply, because it heads off penalty notices later.

1
Employment Development Department. CalSavers Retirement Savings Program
2
CalSavers. Frequently Asked Questions
3
CalSavers. CalSavers – Employer Information
4
California Legislative Information. California Code GOV – 100032
5
State of California Treasurer. Penalties for Non-compliant Employers
6
State of California Franchise Tax Board. CalSavers Collections for CalSavers Retirement Savings Program
7
CalSavers. CalSavers – Adding Employee Information
8
CalSavers. CalSavers – Contributions
9
Internal Revenue Service. 2026 Amounts Relating to Retirement Plans and IRAs
10
Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500
11
Internal Revenue Service. Retirement Plans Startup Costs Tax Credit
12
Office of the Law Revision Counsel. 26 U.S. Code 45E – Small Employer Pension Plan Startup Costs