What is a state-mandated retirement plan?

America’s retirement landscape is changing. Pensions have largely disappeared from the private sector, Social Security seems fragile, and many workers are struggling to save for retirement, especially employees at small-to-medium businesses. 

Many states have passed legislation regarding retirement plans—and have upcoming registration deadlines. It’s more important than ever to figure out what’s required of your business, as well as to find the best retirement plan for you and your employees. 

Before deciding what kind of coverage you want to offer your employees, however, it's essential to understand how state-sponsored retirement plans work and how they can benefit you and your employees. Unsure what’s going on in your state? Keep reading to find out. 

Learn more about starting a 401(k) plan for your business:

• Use our calculator to see how much a 401(k) would cost with SECURE Act tax credits applied.

• Read more about the fees associated with launching and maintaining a 401(k) plan for your business.

• Read our guide on setting up a small business 401(k).

State retirement plan FAQs

Which states have passed laws? 

Since 2012, 48 states have either implemented a state-based retirement savings program, studied program options, or considered legislation. As of October 2024, more than 20 states have proposed retirement plan legislation, while 12 states have active mandated plans in place. Check below to see if there's a deadline in your state.

States with active retirement laws

1. California 

• Type of plan: Auto-IRA

• Deadlines: Final deadline on December 31, 2025, will require employers with 1+ employees that do not currently offer a qualified retirement plan to participate in the program. (Mandates for businesses with 100+ employees, 50+ employees, and 5+ employees have already passed.)

• Fines: Employers may be subject to a $250 fine per employee if found in noncompliance 90+ days after the notice and an additional $500 fine per employee if found in noncompliance after 180+ days.

Learn more about CalSavers

2. Colorado

• Type of plan: Auto-IRA

• Deadlines: All existing deadlines have passed. Employers with 5+ employees that have been in business for two or more years, and who do not currently offer a qualified retirement plan are currently required to comply.

• Fines: Employers may be subject to a $100 fine per employee (up to a maximum of $5,000 per calendar year) if found in non-compliance.

Learn more about Colorado SecureSavings

3. Connecticut

• Type of plan: Auto-IRA

• Deadlines: All existing deadlines have passed. Employers with 5+ employees are currently required to comply.

• Fines: Employers that don’t comply by 90 calendar days after the final noncompliance notice could receive between $500 and $1,500 in fines as outlined below:

  • $500 for employers with 5-24 employees

  • $1,000 for employers with 25-99 employees

  • $1,500 for employers with 100+ employees

Learn more about MyCTSavings

4. Delaware

• Type of plan: Auto-IRA

• Deadlines: Employers with 5+ employees and who do not currently offer a qualified retirement plan are currently required to comply by October 15, 2024.

• Fines: Employers that don't comply with the law could be fined up to $250 per employee per year with a maximum total penalty of $5,000 per year.

Learn more about Delaware EARNS

5. Illinois 

• Type of plan: Auto-IRA

• Deadlines: All existing deadlines have passed. Employers with 5+ employees, who have been in business for at least two years, and who do not currently offer a qualified retirement plan, are currently required to comply.

• Fines: Employers may be subject to a $250 fine per employee for the first calendar year in which employees aren’t enrolled or don’t opt out and $500 per employee for each subsequent calendar year in which employees aren’t enrolled or don’t opt out.

Learn more about Illinois Secure Choice

6. Maine

• Type of plan: Auto-IRA

• Deadlines: The final existing deadline on April 30, 2024, will require employers with 5+ employees that do not currently offer a qualified retirement plan to participate in the program. (Mandates for businesses with 25+ employees and 15+ employees have already passed.)

• Fines: Noncompliance penalties are assessed on a per eligible employee basis as outlined below:

  • $20 per eligible employee from July 1, 2025 - June 30, 2026

  • $50 per eligible employee from July 1, 2026 - June 30, 2027

  • $100 per eligible employee starting July 1, 2027

Learn more about MERIT (Maine Retirement Investment Trust)

7. Maryland

• Type of plan: Auto-IRA

• Deadlines: TBD (program launched on September 15, 2022)

• Fines: TBD

Learn more about MarylandSaves

8. Massachusetts

• Type of plan: Voluntary Open Multiple Employer Plan (MEP)

• Deadlines: The Massachusetts CORE Plan is voluntary and available to small nonprofit organizations with 20 or fewer employees. There are no enrollment deadlines.

• Fines: Because the plan is voluntary, there are no penalties associated with nonparticipation in the plan.

Learn more about Massachusetts Defined Contribution CORE plan

9. New Jersey 

• Type of plan: Roth IRA

  Deadlines: 

  • NJ employers with 40+ employees AND have been in business for 2+ years old Deadline: 9/15/2024, 

  • NJ employers with 25-39 employees AND have been in business for 2+ years old Deadline: 11/15/2024

  Fines: After a written warning in the first year, employers are subject to these fines per employee for every year following: $100 in year 2, $250 in years 3-4, $500 in year 5+.

Learn more about RetireReady NJ

10. Oregon 

• Type of plan: Auto-IRA

• Deadlines: Employers with 1+ employees, who do not currently offer a qualified retirement plan, must register by July 31, 2024. (Mandates for employers with 5+ employees and 3-4 employees have passed.)

• Fines: Employers may be subject to a $100 fine per employee (up to a maximum of $5,000 per calendar year) if found in non-compliance.

Learn more about OregonSaves

11. Virginia

• Type of plan: Auto-IRA

• Deadlines: Existing deadlines have passed for businesses with 25 or more employees that have been in operation for at least two years, and do not currently offer a qualified retirement plan.

• Fines: Eligible businesses can incur up to $200 per eligible employee in penalties per year for noncompliance.

Learn more about RetirePath Virginia

12. Washington    

• Type of plan: Auto-IRA

• Deadlines: TBD

• Fines: TBD

Learn more about Washington Saves

States that have passed legislation

States that have introduced legislation

Arizona, Arkansas, Georgia, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Montana, Nebraska, New Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, Tennessee, Texas, Utah, West Virginia, Wisconsin, Wyoming

Why are states creating state-sponsored retirement programs? 

In short, legislation has been introduced to encourage more private-sector businesses to offer a state retirement plan to their employees. Studies have found that Americans are 15x more likely to save for retirement if their employee offers a plan.

To address the retirement savings crisis, states have implemented or proposed legislation to establish a state-sponsored retirement savings plan to help employees save.

How do state-mandated retirement plans work? 

The majority of state-sponsored plans are actually Roth IRAs, which have a different set of factors to compare from a competitor offering another 401(k):

• 401(k)s can be pre-tax, while Roth IRAs are always post-tax

• 401(k)s have a higher annual contribution limit compared to Roth IRAs

• In 2024, 401(k) contribution limits are $23,000 ($30,500 for those older than 50); while IRA contribution levels are $7,000 ($8,000 for those older than 50).

For more information: IRA vs Roth IRA vs 401(k): What’s the difference?

Do state-mandated retirement programs work?

Results have been mixed so far. For example, the Center for Retirement Initiatives at Georgetown University reports that state-facilitated retirement savings programs have accumulated more than $1.2 billion in assets across roughly 1.6 million accounts as of January 2024.

On one hand, it’s encouraging that more employees are saving. However, the average account balance is only roughly $722, potentially indicating that these plans are hardly setting up individuals for their retirement years.

The reality is that increasing access to retirement benefits is undeniably a worthwhile effort. However, it’s still too early to determine if state-mandated retirement programs truly work across the board. Retirement savings is a marathon, not a sprint. That’s why the current state-run savings programs may need more time to show their true performance.

What does this mean for small businesses?

Now is the time to get ahead. For small businesses in the states with retirement legislation, now is the time to understand the program and prepare for it. Many of the start dates are still in the future, but preparing now will make for a smoother implementation and make it easier to find the best plan for your business, and simplify implementation.

Understand your options. While using the state-sponsored plan is not mandatory, in many states, businesses are legally required to offer some kind of retirement plan. The good news? There are options.

Why offer a retirement plan?

Many employers are prioritizing competitive retirement plans. Not only can starting an employer-sponsored plan come with tax benefits, but it’s also attractive to employees. Retirement benefits are central to employee loyalty, as 79% of employees say a 401(k) or other retirement plan is a must-have. Plus, a retirement plan is the most-wanted benefit after health insurance. 

However, finding the best retirement savings plan for your employees isn’t easy. As an employer, you want to offer your employees tools that help them save for their future.

How to choose the right retirement plan

Start by identifying what is most important to you and your employees. It might be…

• The total amount that you and employees can save each year, as well as whether those contributions will come with any tax benefits.

• The time and manual effort it takes to set up and administer the plan. Some providers offer integration with payroll providers to automate employee contributions. 

• The cost to you, or your employees, and how those compare to the rest of the industry.

• The level of support you and your employees desire, including help with setup and day-to-day administration, compliance, or choosing investments. 

• Whether you and your staff seek dedicated account management and ongoing support by phone or email.

• The specific features of the plan, like whether or not investment education is included, vesting schedules, the type of investment options you’ll be able to access, the option to offer perks like an employer match, and more. 

Read more about how to choose the best 401(k) provider for your needs.

If you’re a small business owner interested in offering a workplace retirement savings plan, it’s important to figure out what works best for you. Human Interest can help you find the latest information about state mandates. We offer affordable, customizable plans that can satisfy the mandate in your state and allow you and your employees to save more money each year.

Find out which 401(k) plan works best for your business.