INSIGHT

CalSavers vs. 401(k): Which Is Right For Your California Business? 

Monica Frame • March 25, 2026

Services: Pooled Employer Plan

---

If you own or operate a business in California with five or more employees, you are already operating under a state retirement mandate. California law requires employers who do not offer a qualified workplace retirement plan to enroll employees in CalSavers, the state’s auto-IRA program. For many business owners, that requirement raises an immediate question: is CalSavers good enough, or is a 401(k) the better path? 

The honest answer is that it depends on what you want retirement benefits to do for your business. Here is a straightforward look at both options to help you decide. 

What Is CalSavers? 

CalSavers is a state-administered, automatic enrollment Roth IRA program designed to give California workers access to retirement savings when their employer does not offer a qualified plan. Employers who meet the threshold and lack a qualifying plan are required to register and facilitate payroll deductions on behalf of their employees. 

How CalSavers Works for Employers 

From an employer’s perspective, the program is intentionally lean. Here is what participation looks like in practice: 

• Registration is relatively quick and straightforward 
• There are no employer fees and no employer contributions 
• Your role is limited to enrolling employees and submitting payroll deductions 
• Employees are automatically enrolled at a default contribution rate and can opt out 

CalSavers is designed to minimize employer involvement, and it succeeds at that. But that simplicity comes with meaningful trade-offs. 

What Is a 401(k), and How Is It Different? 

A 401(k) is a qualified employer-sponsored retirement plan governed by ERISA. It gives both employees and employers far greater flexibility and savings power than a state-sponsored IRA program. It also comes with more responsibility for the employer, though that burden can be significantly reduced depending on the plan structure you choose. 

How a 401(k) Compares to CalSavers 

When you look at the two programs side by side, the differences in benefit quality are significant across several dimensions: 

• Contribution limits: In 2026, employees can contribute up to $24,500 to a 401(k), with a catch-up contribution of $8,000 for those age 50 and older. CalSavers accounts are Roth IRAs, capped at $7,500. 
• Employer matching: Not available under CalSavers. A 401(k) allows you to offer an employer match, which is one of the most valued and effective tools for attracting and retaining employees. 
• Tax advantages: 401(k) contributions can be made pre-tax, reducing employees’ taxable income in the year of contribution. CalSavers contributions are Roth (after-tax) only. 
• Investment options: CalSavers offers a limited menu of state-selected funds. A 401(k) can offer a broader range of investment options tailored to your workforce’s needs. 

Across every one of these dimensions, a 401(k) gives your employees a meaningfully more powerful savings vehicle. 

So Which Option Is Right for Your Business? 

CalSavers makes sense if your primary goal is simply meeting the state mandate with minimal cost and administrative effort. If you have a very small workforce, tight margins, and limited HR capacity, it may be the most practical starting point. 

A 401(k) makes sense if you want your retirement plan to do more than satisfy a legal requirement. It is the stronger choice if any of the following apply to your situation: 

• You are competing for talent and want benefits that help you stand out 
• You want to offer an employer match as part of your total compensation strategy 
• Your employees would benefit from higher contribution limits and pre-tax contributions 
• You are growing outside of California and anticipate crossing workforce thresholds in other states that trigger compliance requirements 
• You want more control over investment options and plan design 

For many California businesses, a 401(k) structured as a Pooled Employer Plan, or PEP, offers a particularly practical path. A PEP delivers the benefit quality of a 401(k) while significantly reducing the administrative complexity, fiduciary responsibility, and audit burden that often make employers hesitant to move beyond CalSavers. 

The Cost of Staying with CalSavers 

It is worth pausing on one point that often gets overlooked. CalSavers has no cost to the employer, but that does not mean it is free. The opportunity cost of offering a less competitive benefit is real. In a tight labor market, the difference between a state IRA program and a 401(k) with or without an employer match can influence whether a candidate accepts your offer or a competitor’s. 

Retirement benefits are increasingly part of how employees evaluate employers, particularly among workers who are thinking about long-term financial security. Offering CalSavers meets the legal bar. Offering a 401(k) raises it. 

How BPM Can Help You Evaluate Your Options 

Choosing between CalSavers and a 401(k) is ultimately a business decision, and it deserves the same careful analysis you would apply to any significant operational choice. BPM’s professionals work with California businesses to evaluate retirement plan structures, assess current and projected costs, and determine which approach best fits your workforce, your growth trajectory, and your compliance obligations. 

If a 401(k) is the right direction, BPM can guide you through plan design, provider selection, implementation, and ongoing advisory support as your needs and the regulatory environment evolve. 

Contact BPM to schedule a conversation about your retirement plan options and find the right fit for your California business.