LAST REVIEWED Jan 26 2022 8 MIN READ
By The Human Interest Team
The Rhode Island Secure Choice Retirement Savings Program Act (S2014) was introduced in January 2022
If passed, S2014 would establish RISavers, a payroll deposit IRA designed to help more small business employees save for retirement
Most businesses with 5+ employees would be required to enroll eligible employees, although they have alternative options, including 401(k) plans
Rhode Island may be the smallest state in the country, but it’s facing a big retirement shortfall. About half of private-sector workers in the state aged 18 to 64 do not have access to a retirement program through work, leading to a potential drain on public resources as today’s workforce ages. Not only is Social Security the only source of income for one in three Rhode Islanders age 65 and older, but it makes up half or more of income for 65% of Rhode Islanders age 65 and older.
While Rhode Island legislators have unsuccessfully enacted legislation for a state-sponsored retirement program three times, you can’t say they aren’t persistent. Three bills introduced in the State House—in 2015, 2016, and 2017—all died either in committee or in chamber with recommendations for further study. Ocean State Senators are hoping to pick up where the House left off, however, with the January 6, 2022 introduction of the Rhode Island Secure Choice Retirement Savings Program Act (S2014).
The bill would establish RISavers, a payroll deposit IRA designed to provide retirement savings access to many of the 185,000 workers who don’t have a retirement plan through their workplace. Rhode Island has had several chances to get this program right, so the fourth time could finally be the charm for a state-mandated retirement plan. Read on to learn how it could affect your business and employees.
What we know about the Rhode Island state-mandated retirement plan
The program seeks to promote increased retirement savings for Rhode Island private sector employees “in a convenient, voluntary, low-cost, and portable manner.” It builds upon the last such legislation in the state (2017’s H6125) by installing a public corporation, the Rhode Island Secure Choice Savings board, within the treasurer’s office (rather than a board of trustees separate from the state treasury), which will be responsible for:
Selecting a third-party administrator
Establishing a limited number of investment options
Setting minimum and maximum contributions (with annual automatic raises; capped at 8%)
Providing employee education materials
Adhering to the board-designated open enrollment period
There are no published timelines or deadlines for implementing the program, but it can begin once the board has notified the governor and house finance committees that the plan is structured to avoid becoming an employee benefit plan subject to ERISA, required payroll deduction arrangements qualify for favorable federal income tax treatment, and it’s formed a third-party administrator relationship that minimizes the need for employer responsibility.
The bill has been referred to the Senate Finance Committee. We’ll be sure to keep you up to date on any developments to the Rhode Island Secure Choice Retirement Savings Program.
What RISavers means for employers
If passed, almost all businesses, both for-profit and not-for-profit, not offering a qualified retirement plan—including a 401(k), SEP-IRA, or Simple IRA—would be required to participate in RISavers:
Employers with 100+ employees must participate within 12 months of implementation
Employers with 50+ employees must participate within 24 months
Employers with 5+ employees must participate after 36 months (according to bill text, an “eligible employer” is defined as a business with five or more employees)
Employers must enroll all eligible employees unless they opt out, which they may do at any time. Employers who fail to enroll eligible employees by the relevant deadline will be subject to a $250 fine per employee.
As written, employers will have few requirements aside from enrolling eligible employees, establishing a payroll deposit retirement savings arrangement, and providing board-furnished education materials. At the board’s discretion, employers may be able to make contributions to employees’ accounts as long as it doesn’t violate IRS rules or constitute an employee benefit plan. Employers will neither be responsible nor liable for employees’ decisions to opt in or out, nor for any employee investment choices or investment performance.
What Rhode Islanders could gain from a state-sponsored retirement program
Because almost all businesses in the state will be required to participate in the Secure Choice Program, RISavers may vastly improve the ability of many Rhode Islanders to save for retirement, especially the small business and minority workers who need it most. While Rhode Island workers of all education and earning levels lack access to a retirement plan, those at small businesses are disproportionately impacted. In fact, 67% of workers at businesses with less than 100 employees work for a company without a retirement plan, amounting to 110,000 small business employees.
Minorities are also bearing the brunt of not having a way to save for retirement. About 67% of Hispanic workers and about 52% of African Americans lack access to an employer-provided retirement plan in Rhode Island. In fact, minorities account for about 30% (55,000) of the roughly 185,000 employees without a workplace retirement plan.
Having the option to set aside money through work vastly increases the likelihood that people will save in the first place. Very few people without a tax-deferred retirement savings vehicle start or contribute to an IRA. Research shows that workers are 15 times more likely to save for retirement when given the option at work, while some 90% of households participating in an employer-sponsored retirement plan report that payroll deductions are critical to their savings.
Could a 401(k) be a better fit for your Rhode Island business?
Workers in the state of Rhode Island deserve the ability to build a secure future through retirement plans at work. However, the state-provided plan isn’t your only option. If you’re interested in exploring your options for complying with the Rhode Island Secure Choice Retirement Savings Program Act, or are simply moved to do more to help provide a secure future for your employees that lasts beyond their tenure at your company, you should consider a 401(k) for your small business.
401(k)s are a popular alternative to IRAs, and it’s important to evaluate the unique needs of your business and its employees against the types of plans that could help you comply with state mandates and best serve your employees. Human Interest can help. For more information, click here to get started or review these additional resources:
The Human Interest Team
We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.