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.
California
Colorado
Connecticut
Illinois
Maine
Maryland
Oregon
Virginia
California
Active plan, final deadline 12/31/2025.
Colorado
Active plan, all deadlines have passed.
Connecticut
Active plan, add deadlines have passed.
Delaware
Hawaii
Illinois
Active plan, final deadline 11/2023.
Maine
Active plan, final deadline 4/2024. Plan to partner with Colorado in the future.
Maryland
Active plan, no deadlines established.
Massachusetts
Active, voluntary MEP for non-profits only.
Minnesota
Legislation signed, launch date expected in 2024 or 2025.
Missouri
Voluntary MEP, expected to launch September 2025.
Nevada
New Jersey
Legislation signed, launch date not yet established.
New Mexico
Active, voluntary plan. Partnership with Colorado expected to launch July 2024, will still be voluntary.
New York
Plan was expected to launch in 2022, but it is not live yet and no deadlines have been established.
Oregon
Active plan, all deadlines have passed.
Pennsylvania
Legislation passed, waiting to be signed. Expected to launch 2025.
Vermont
Legislation signed, expected to launch 2025.
Virginia
Active plan for businesses with 25+ employees, deadline 2/15/2024.
Washington
Currently offering a voluntary marketplace; will institue mandates like other states. Legislation signed, with a program to launch January 2027.
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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