With an epidemic of Americans being underprepared to provide financially for their twilight years, more and more states are mandating that businesses offer a retirement plan to their employees.
Businesses must choose.
Although the details vary from state to state, most are requiring businesses with 5 employees or more to offer a retirement benefit to their employees.
Businesses can choose to use the state-managed program, which is usually a payroll-deduction Roth IRA, or purchase a qualifying alternative privately. Either way, a decision must be made that affects employees.
Look at the alternatives.
Active plan, final deadline 12/31/2025.
Active plan, all deadlines have passed.
Active plan, add deadlines have passed.
Active plan, final deadline 11/2023.
Active plan, final deadline 4/2024. Plan to partner with Colorado in the future.
Active plan, no deadlines established.
Active, voluntary MEP for non-profits only.
Legislation signed, launch date expected in 2024 or 2025.
Voluntary MEP, expected to launch September 2025.
Legislation signed, launch date not yet established.
Active, voluntary plan. Partnership with Colorado expected to launch July 2024, will still be voluntary.
Plan was expected to launch in 2022, but it is not live yet and no deadlines have been established.
Active plan, all deadlines have passed.
Legislation passed, waiting to be signed. Expected to launch 2025.
Legislation signed, expected to launch 2025.
Active plan for businesses with 25+ employees, deadline 2/15/2024.
Voluntary marketplace with multiple types of plans, for companies with 100 or fewer employees.
Download the free guide to secure choice retirement plans.
Is it legally required in all U.S. states for employers to provide retirement plans to employees?
In most states, employers are not required to offer retirement plans. However, a few states do have these requirements, and several more are working on legislation. See the list above for details.
What counts as an employer retirement plan?
While 401(k)s are the most common employer-sponsored retirement plan, other options include SIMPLE IRA plans, SEP plans, profit-sharing plans, cash-balance plans, and stock ownership plans. Each state has rules about what types of plans will count as an exemption from the state plan, so it’s best to consult your state regulations.
Do employees like the state plans?
Obviously, opinions vary. A payroll-deduction IRA is more powerful than a private IRA, and both of those are better than no retirement option at all. However, many bad reviews of the state plans can be found, and most of them focus on communication and education issues and poor support.
By contrast, 401GO has a 4.8-star rating and leads the industry for customer support.
Do employees have to participate in state plans?
Most states offer auto-enrollment IRA plans, meaning employees will be automatically added to the plan, and contributions will be taken from their paychecks. However, employees are always able to opt out of the plan, and stop and start contributions anytime.
Many 401(k) plans also have auto-enrollment features, always with the ability to opt out, so education and communication with employees is important.
What are the penalties for not offering a retirement plan?
These penalties vary from state to state. Those states that have mandates in place will almost always have penalties attached for those who don’t comply. It’s best to consult your state to determine the exact penalties and deadlines.
LEARN MORE ABOUT STATE RETIREMENT MANDATES
An epidemic of under-preparedness for retirement is growing in the United States, while confidence in Social Security is shrinking. States are responding with legislation that requires businesses to offer a work-sponsored retirement program to their employees, either a private plan — such as a 401(k) — or the state-provided plan, often a Roth IRA.
While a Roth IRA can be a beneficial tool for retirement saving, these broad scale programs are far from ideal. Program details vary from state to state, so it’s wise to read the fine print.
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The state of New York mandates that all employers that do not offer a retirement plan enroll their employees in the state Secure Choice Savings Program.
The state of California has enacted into law a mandatory retirement plan called CalSavers. This mandate will affect millions of companies with employees in California. Understand the details and implications before making a decision with far-reaching consequences.
With secure choice plans being offered in more and more states, it’s important to understand enough details to advise clients properly on their best options. Retirement plan decisions can have far-reaching consequences for both employer and employee.
The state of Illinois passed the Illinois Secure Choice Program Act, which became effective in June of 2015. Like many other similar state retirement programs, it mandates that all employers that do not offer a retirement plan to their employees participate in the state plan.