Cal Savers vs 401k Which is better?

If you’re a small business owner in California, you received the letter about CalSavers and the 2026 compliance deadline. Most owners reading that letter have the same reaction.

“Do I really have to do this if I only have one employee?”

The short answer is yes. If you have even one W-2 employee, California requires you to either register for CalSavers or offer a qualifying retirement plan. That applies whether you have one employee or a small team.

CalSavers was never designed to be a strategic benefit. It was designed as a compliance solution. For some very small businesses, it can be a reasonable place to start. It is rarely where business owners want to stay once they understand how it works in practice.

What CalSavers Really Means in Practice

On paper, CalSavers looks simple. In reality, it comes with trade-offs that matter to both business owners and employees.

CalSavers is entirely employee-funded. There are no employer contributions. The employer’s role is administrative, not financial. Payroll deductions must be set up correctly, employee data must be maintained, and opt-ins and opt-outs must be tracked.

From a fiduciary standpoint, CalSavers limits investment responsibility, but it does not eliminate employer responsibility. Employers are still accountable for accurate administration and timely reporting. Errors can still create problems.

From the employee’s perspective, CalSavers is portable. The account follows them if they leave. That portability is often framed as a benefit, but it also means there is no incentive tied to staying with the company. Employees do not view CalSavers as a benefit their employer is invested in. It feels individual, not shared.

This is where many business owners start to feel the disconnect. The requirement is met, but the outcome does not support retention, loyalty, or long-term planning.

When CalSavers Stops Making Sense

CAlSavers stops making sense when businesses start to grow.  Growth can mean revenue or team size. A common scenario is a business that starts with one or two employees and uses CalSavers to comply with the mandate. As the team grows to four or five people and revenue becomes more predictable, the limitations of CalSavers become obvious.

Employees opt out or disengage. Owners realize they cannot contribute on behalf of their team. High-earning owners see that CalSavers does nothing to address their own retirement or tax planning needs. At that point, CalSavers is no longer a solution. It is simply a placeholder.

What Changes When a Business Moves to a 401(k)

Transitioning from CalSavers to a properly designed 401(k) is often a turning point for small businesses.

A 401(k) allows employers to contribute, match, or profit share. That immediately changes how employees view the benefit. It becomes something the business is actively providing, not just administering.

For employees, this creates a reason to stay. For owners, it creates flexibility. Contribution levels can be adjusted. Safe Harbor provisions can be added. The plan can grow with the business rather than stay fixed.

From a paperwork standpoint, a 401(k) does involve more structure than CalSavers, but with the right TPA, the burden is not placed on the business owner. Plan design, compliance testing, filings, and ongoing administration are handled behind the scenes so the plan operates smoothly and stays compliant.

What About Defined Benefit or Cash Balance Plans?

For high-income owners, Cash Balance and DB plans are often part of the conversation when it comes to tax strategies that can fund their retirement and reduce taxable income. 

A defined benefit or cash balance plan can be a powerful tool, but it does not replace the obligation to employees. Non-discrimination and coverage rules still apply. A plan designed only for the owner does not satisfy California’s requirements if employees are excluded.

However, when retirement plans are designed intentionally, it is often possible to align owner-focused strategies with employee benefits in a way that is compliant, fair, and sustainable. That level of coordination is not possible with CalSavers.

One Employee vs. Five Employees

For a business with one employee and limited cash flow, CalSavers may be an acceptable short-term decision. Once a business has a small team, consistent income, and a desire to retain good people, a 401(k) almost always becomes the better option. It provides flexibility, credibility, and long-term value that CalSavers cannot offer.

The mistake many business owners make is assuming they must choose one path permanently. In reality, CalSavers can be a starting point, not an endpoint.

Making the Right Decision for Your Business

The right choice depends on where your business is today and where it is headed. Compliance matters, but so does strategy. Retirement plans are not just about checking a box. They are about building something that supports both the business owner and the people who help run it.

At Mirador, the focus is on helping small California businesses move beyond minimum requirements and into plans that actually work, for owners, for employees, and for the future of the business.