Yes. In California, a retirement plan is mandatory for essentially every private employer. State law requires any business with at least one employee (age 18 or older) to either sponsor a qualifying retirement plan such as a 401(k) or enroll its workers in CalSavers, the state-run payroll-deduction Roth IRA program. The rule is codified in Title 21 of the California Government Code, and as of December 31, 2025, it applies to employers of every size.
Who the Mandate Covers
The obligation attaches to any employer that had an average of one or more California-based employees during the prior calendar year, with at least one employee 18 or older, and that does not already sponsor a qualifying retirement plan.1CalSavers. Employer Information: CalSavers A two-person dental office is covered on the same terms as a 500-person tech company.
A handful of employers fall outside the mandate:
- Employers that already sponsor a 401(k), 403(b), SEP IRA, SIMPLE IRA, defined benefit plan, 401(a) qualified plan, or an auto-enrollment payroll deduction IRA that qualifies for favorable federal tax treatment.2California Legislative Information. California Government Code Title 21 – Section 100032
- Sole-owner businesses with no employees other than the owner or owners.1CalSavers. Employer Information: CalSavers
- Government entities, religious organizations, and tribal organizations.3CalSavers. Frequently Asked Questions
Even if you’re exempt, log into the CalSavers employer portal and certify your exemption. Skipping that step is what triggers compliance notices for businesses that actually have a plan in place.
The Two Ways to Comply
California doesn’t require you to use CalSavers. It requires you to offer a qualifying retirement plan, and CalSavers is simply the default option if you don’t set up something on your own. The California Government Code recognizes these plan types as satisfying the mandate:
- 401(k) plans, including pooled employer plans and multiple employer plans
- 401(a) qualified plans, such as profit-sharing and defined benefit plans
- 403(b) tax-sheltered annuity plans
- SEP plans
- SIMPLE IRA plans
- Payroll deduction IRAs with automatic enrollment
Any of those plans must qualify for favorable federal income tax treatment to satisfy the exemption.2California Legislative Information. California Government Code Title 21 – Section 1000323CalSavers. Frequently Asked Questions
The trade-off is straightforward. CalSavers is free for the employer, involves minimal administrative work, and carries no fiduciary liability. A private plan like a 401(k) costs more to set up and run, but it lets you make employer contributions or matches, offers higher annual contribution limits for employees, and can be a real recruiting tool. CalSavers, by design, does not allow employer contributions or matching.3CalSavers. Frequently Asked Questions
What You Have to Do If You Use CalSavers
The statute limits employer duties to “ministerial” activities: you’re a conduit, not a plan manager.2California Legislative Information. California Government Code Title 21 – Section 100032 Those duties are:
- Register the business through the CalSavers employer portal.
- Submit employee roster information so workers can be enrolled.
- Withhold contributions from employee paychecks and remit them to CalSavers.
- Distribute CalSavers-provided informational materials to employees.
There are no employer fees for participating.4Employment Development Department. CalSavers Retirement Savings Program You may not contribute to employee accounts, advise employees on whether to participate, or select investments.3CalSavers. Frequently Asked Questions
The statute expressly states that employers are not fiduciaries of the program and bear no liability for investment returns or benefits paid.2California Legislative Information. California Government Code Title 21 – Section 100032 This limited role is what keeps CalSavers outside the federal Employee Retirement Income Security Act (ERISA), so participating employers face no ERISA reporting or liability.5U.S. Department of Labor. Fact Sheet: State Savings Programs for Non-Government Employees
Federal Tax Credits for Choosing Your Own Plan
If you set up a private plan instead of using CalSavers, federal tax credits can absorb much of the cost. Under SECURE 2.0, eligible small businesses can claim a startup costs credit of up to $5,000 per year for three years when they establish a new SEP, SIMPLE IRA, or qualified plan like a 401(k). Employers with 50 or fewer employees can get 100% of eligible costs covered; employers with 51 to 100 employees get 50%.6Internal Revenue Service. Retirement Plans Startup Costs Tax Credit
Adding an automatic enrollment feature adds another $500 per year for three years. And small employers with up to 50 employees who actually contribute to their workers’ accounts can claim an additional credit of up to $1,000 per participating employee per year, tapering down over five years.6Internal Revenue Service. Retirement Plans Startup Costs Tax Credit For a small employer running the math against CalSavers, these credits are the biggest reason to consider a 401(k).
Deadlines Have All Passed
California phased the mandate in by employer size, and every deadline is now behind us:
- More than 100 employees: June 30, 2020 (extended by regulation to September 30, 2020).7California State Treasurer. California Code of Regulations Title 10, Chapter 15 – Section 10002
- More than 50 employees: June 30, 2021.2California Legislative Information. California Government Code Title 21 – Section 100032
- Five or more employees: June 30, 2022.2California Legislative Information. California Government Code Title 21 – Section 100032
- One or more employees: December 31, 2025.2California Legislative Information. California Government Code Title 21 – Section 100032
If you missed your window, register now. Penalties don’t start the day after the deadline; they run from a formal notice of non-compliance issued by the CalSavers Board, which gives you a defined period to act before fines accumulate.
Penalties for Non-Compliance
Penalties are tied to the notice, not the deadline. Once the CalSavers Board issues a notice of non-compliance, you have 90 days to comply. If you still haven’t acted after 90 days, the penalty is $250 per eligible employee. If non-compliance continues past 180 days after the notice, an additional $500 per eligible employee is assessed, bringing the total to $750 per employee.8California Legislative Information. California Government Code Title 21 – Section 100033
A business with 20 employees is looking at up to $15,000 in penalties for skipping a registration form. The Board has authority to waive or reduce penalties if the employer shows good cause, but that’s discretionary.3CalSavers. Frequently Asked Questions
What Employees Get
Under CalSavers, employees are automatically enrolled in a Roth IRA with a default contribution rate of 5% of gross pay, escalating by 1% per year up to 8%, unless the employee chooses a different rate.4Employment Development Department. CalSavers Retirement Savings Program Employees can opt out, change their rate, or switch to a Traditional IRA at any time.3CalSavers. Frequently Asked Questions
The account belongs to the employee, not the employer. It stays with the worker if they change jobs, and if the next employer also uses CalSavers, contributions resume automatically unless the employee opts out.3CalSavers. Frequently Asked Questions Because these are IRAs, they follow federal IRA rules rather than the higher 401(k) limits: the 2026 contribution cap is $7,500, plus a $1,100 catch-up at age 50 or older.9Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Employees whose income exceeds the Roth IRA phase-out range will need to opt out or switch their account to a Traditional IRA to avoid excess contribution problems.