California’s Retirement Benefit Mandate: What Startups Need to Know

The State of California has mandated that employers of all sizes must provide retirement benefits to their employees. Here’s what the law means for startups:

• Effective December 31, 2025, startups with as few as one to four employees will have to comply with the California retirement benefits law, known as the Secure Act and Secure Act 2.0. 
• This means that startups with just one W-2 employee (excluding founders) will need to set up an employee retirement plan, or risk fines and penalties.  
• The good news is that founders or business owners are exempt from the California retirement mandate. If your startup consists of just you or only other co-founder(s), and you haven’t employed anyone yet, you are not required to provide retirement benefits. You’ll still need to apply for an exemption, though. 
• But as soon as you hire one employee, you will be required by law to provide retirement benefits.
• It’s important to note that if your startup has five or more employees, you should have already set up a retirement plan for your employees, as required by California law. If you haven’t yet, you may be liable for penalties and fines. Consult with your legal counsel about your specific situation.

What is a retirement benefit, and why is it mandated?

A retirement benefit is a type of savings fund that employers and their employees typically pay into during their working years. When they retire, they can then draw on this fund to support themselves. This could be a public-sponsored plan or a private investment fund. Social Security, at the federal level, is a type of public retirement plan. However, with concerns that Social Security is in jeopardy, combined with the fact that millions of Americans have either zero or not enough savings to fund their retirement, most states have stepped in to help in some way.

A handful of states have passed legislation that mandates even small employers, such as startups, to offer retirement benefits. While this blog focuses on California, be aware that Oregon, Colorado, Connecticut, Illinois, Maryland, Massachusetts, and Washington have also implemented mandated retirement laws for small employers. If you have employees working in any of these states, you should also provide retirement benefits for them. Each state varies in the exact number of employees that trigger the retirement benefits requirement, so you’ll need to check specific state regulations.  

What happens if I don’t offer a retirement benefit in California?

You’re probably wondering what happens if I don’t offer a retirement benefit? I don’t recommend going this route because you risk fines and penalties that could hinder your cash runway and your startup’s growth during its early stages.

Here’s a quick chart to show you how the non-compliance fines levied by the State of California’s Franchise Tax Board could easily add up over time with just three employees.

What are my startup retirement benefit options? 

So what are your options? I’ll walk you through each one and discuss the pros and cons.  

Option 1 - Exemptions

• If you are the sole founder or your startup only employs you and your co-founder(s), you are exempt from the Secure Act and Secure Act 2.0. 
• However, you must apply for an exemption from this California retirement mandate. 
• If you already offer a private 401(k) retirement benefit to your startup employees, you have satisfied the mandate and must certify the exemption. 
• Other exemptions include government entities and religious or tribal organizations.  
• Apply for exemptions from the State of California here.

Option 2 - 401(k)

• If you have one or more employees (excluding founders), your best option is to set up a private 401(k) retirement plan for your employees, using a plan administrator. 
• The plan administrator will handle the required pre-tax employee payroll deductions and all the necessary paperwork on your behalf. 
• While private 401(k) plans involve fees for employers, the good news is that there are tax credits to cover your costs.
• For example, there is a federal tax credit for small businesses to cover 100% of your setup and admin costs.
• Employer matching contributions are optional. But if you do decide to participate in an employer match, a tax credit is also available to help employers cover this cost. 
• 401(k) benefits also come with many perks that can be used to attract and retain top talent. 
• For example, employee contributions are 3x higher than IRAs, meaning your employees can save faster. They can also access loans and make emergency expense distributions. 
• Another value-add is that private 401(k) accounts are professionally managed, so employees can likely expect better returns.
• Going the 401(k) route also means you can provide retirement benefits for ALL your employees, not just those in California. In fact, offering 401(k) plans to all employees is required according to the federal Employee Retirement Income Security Act (ERISA).

Option 3 - CalSavers

• Finally, if you don’t offer a private 401(k) option, your startup is required by law to register your California employees for the CalSavers Retirement Savings Program.
• CalSavers is a state-run Roth IRA program that helps your employees save for retirement through automatic pre-tax payroll deductions. Find out more about CalSavers here.
• This is a very basic plan with no frills, and there are limited contribution caps for employees.
• There are no fees, and no employer contributions are required or permitted.
• CalSavers only covers your California employees. Employees in other states will not be covered.
• The bad news is that you will need to manually register your California employees for the program, upload their employee information, and process the required payroll deductions. It’s a somewhat cumbersome process, and probably not the best route. 
• Register here for CalSavers.
  
  

CalSavers vs 401(k) comparison table

Key steps to comply with California’s retirement mandate

1. Apply for your exemption. If your startup has only founder(s) with no employees, OR if you already offer a retirement 401(k) benefit. Apply for or certify your exemption here.
2. Enroll one or more employees in CalSavers. This is the bare minimum option to ensure you satisfy the California mandate for your California employees. However, it’s a cumbersome process. Register here for CalSavers.
3. Set up a private 401(k) plan. This is the optimal way to provide an attractive retirement benefit for employees while satisfying the California mandate and reaping tax advantages for your startup. Every can help you set up a 401(k) retirement plan for your employees through our 401(k) providers. Set up your 401(k) plan with Every’s help.

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How Every can help your startup comply with California’s retirement mandate

• Every, an all-in-one solution for HR, Payroll, and Compliance, ensures your startup stays compliant with state and federal labor regulations. 
• Every offers built-in notifications to alert founders when their startup's size triggers California’s retirement mandate. So you’ll never be in the dark.
• Every offers 401(k) retirement benefit plans designed for startups and does all the heavy lifting, including automatic employee payroll deductions.
• Every partners with modern 401(k) providers Octave Wealth and Human Interest.

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Find out more about how Every can help your startup with HR, Payroll, and Compliance. [Request demo]