What is a state-sponsored retirement plan?

8 MIN READEditorial Policy

Key Takeaways

  • As of June 2023, nine states have active state-mandated retirement programs, while 19 states have enacted a program

  • Many state-sponsored retirement plans are Roth IRAs, which typically have lower contributions than 401(k) plans

  • In most states, small businesses can choose between the state-provided program or other options like 401(k) plans based on their business needs and plan features

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:

State retirement plan FAQs

Which states have passed laws? 

Since 2012, 46 states have either implemented a state-based retirement savings program, studied program options, or considered legislation. As of June 2023, there are 19 states that have either passed laws or have pending legislation that outlines new programs for private-sector workers. Of that number, nine states have active laws.

States with active retirement laws

1. California 

  • Type of plan: Individual Retirement Account (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: Individual Retirement Account (Auto-IRA)

  • Deadlines: Employers with 15-49 employees, that have been in business for two or more years, who do not currently offer a qualified retirement plan, must register by May 15, 2023. Employers with 5-14 employees have until June 30, 2023. (Mandates for businesses with 50+ employees and 15-49 employees have already 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 Colorado SecureSavings

3. Connecticut

  • Type of plan: Individual Retirement Account (Auto-IRA)

  • Deadlines: Employers with 5 to 25 employees must register by August 31, 2023. (Mandates for businesses with 100+ employees and 26-99 employees have already passed.)

  • Fines: There are penalties, but they are currently undefined. According to the program, "If a business falls out of compliance and fails to register, an investigation could occur and there may be penalties."

Learn more about MyCTSavings

4. Illinois 

  • Type of plan: Individual Retirement Account (Auto-IRA)

  • Deadlines: Employers with 5-15 employees, who have been in business at least two years and who do not currently offer a qualified retirement plan, must register by November 1, 2023. (Mandates for businesses with 25+ employees and 16-24 employees have passed.)

  • 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 the second calendar year in which employees aren’t enrolled or don’t opt-out. 

Learn more about Illinois Secure Choice

5. Maryland

  • Type of plan: Individual Retirement Account (Auto-IRA)

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

  • Fines: TBD

Learn more about MarylandSaves

6. Massachusetts

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

  • Deadlines: N/A - The MA CORE Plan is voluntary and available to small nonprofit organizations with 20 or fewer employees.

  • Fines: N/A 

Learn more about Massachusetts Defined Contribution CORE plan

7. Oregon 

  • Type of plan: Individual Retirement Account (Auto-IRA)

  • Deadlines: Employers with 1-2 employees, who do not currently offer a qualified retirement plan, must register by July 31, 2023. (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

8. Virginia

  • Type of plan: Individual Retirement Account (Auto-IRA)

  • Deadlines: TBD (program scheduled to launch by July 1, 2023) 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: TBD

Learn more about RetirePath Virginia

9. Washington    

  • Type of plan: Voluntary Marketplace

  • Deadlines: N/A

  • Fines: N/A

Learn more about Washington's retirement marketplace

States that have passed legislation

StateRecent updates
DelawareAuto-IRA program expected is set to be implemented by January 1, 2025
HawaiiHawaii approved its state-run IRA program in May 2022
MaineAuto-IRA program expected to be implemented by spring 2024
MinnesotaProgram details TBD
MissouriMEP program is set to be implemented by September 1, 2024
NevadaProgram details TBD
New JerseyAuto-IRA program was slated to launch in March 2022, although implementation timeline is TBD.
New MexicoAuto-IRA program deadlines have been pushed back to July 1, 2024
New YorkAuto-IRA program appears to be moving forward, but final details, including any deadlines, are TBD.
VermontAuto-IRA program could be phased out for employers beginning July 2025.

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, Pennsylvania, 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 people are more likely to save for retirement if their employer offers a 401(k) or some other type of retirement savings program. 

According to a National Institute on Retirement Security report from 2018, nearly 60% of working Americans lack access to a workplace retirement 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 2023, 401(k) contribution limits are $22,500 ($30,000 for those older than 50); while IRA contribution levels are $6,500 ($7,500 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, a 2021 study from the National Bureau of Economic Research found that, while OregonSaves has generated savings for more than 67,000 participants through April 2020, the average account balance was only $754. On one hand, it’s encouraging that more employees are saving. However, if this average account balance is any indication, 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.

Choosing the right 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 40% of employees say they’re a key reason to stay with an employer. Plus, 87% of workers say a 401(k) is a must-have when looking for a new job.

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.

Start a 401(k) with Human Interest

A Human Interest 401(k) plan can connect directly with your favorite payroll provider and has zero transaction fees.

Trenton Reed is the Manager of Content Strategy at Human Interest. He has nearly a decade of experience writing for Fortune 500 and SMB companies across finance, technology, and other verticals.

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