State-facilitated Workplace Retirement Programs: What Businesses Should Know
- Employee Benefits
6 min. Read
Last Updated: 12/06/2023
Table of Contents
Over half of U.S. states have enacted legislation requiring private-sector businesses of a certain size to participate in a state-facilitated IRA program if they don’t currently offer an employee retirement plan. Businesses that don’t comply could potentially incur state penalties. Employers can choose a retirement plan from a non-government provider as long as it meets state requirements.
Across America, many states are experiencing a retirement savings crisis. For example, in Connecticut, 600,000 working people in private industries still have no access to retirement plans. In New York State, that number is in the millions. The Federal Reserve reports that financial well-being declined and 35% of those surveyed said they were worse off than the year before, while only 31% of non-retirees from the 2023 survey thought their retirement plan was on track — down 9% from the year before1.
To deal with this crisis, 18 states and two cities have enacted legislation and nine have been fully implemented programs. Of the enacted states, almost all are mandatory except for Massachusetts, which has proposed legislation to make it mandatory for for-profit businesses, as well as New Mexico and Washington.
Enacted: Delaware, Hawai'i, Maine, Minnesota, Nevada, New Jersey, New Mexico, New York, and Vermont.
Fully implemented and active: California, Colorado, Connecticut, Illinois, Maryland, Massachusetts (for non-profits), Oregon, Virginia, and Washington
Check the status of your state at our online resource center.
State Retirement Programs, at a Glance
If your business already offers a workplace retirement plan, you may register for an exemption from the state retirement program. If you have a business without a retirement plan, however, you might need to comply with the state’s (and/or the state where your employees work) program requirements or risk potential penalties. While every state is different, most state-facilitated retirement programs:
- Are designed as Roth individual retirement accounts (IRAs)
- May be mandated for businesses employing a certain number of employees
- Use investment firms and investments chosen by the state
- May require employers to automatically enroll employees at a contribution of three to five percent of each employee’s payroll wages
- Allow workers to opt out of contributing via payroll deduction
- May require employers to do some administration
Also noteworthy is that a business located in a state without a mandate to offer a workplace retirement plan might still have obligations regarding a workplace retirement program if they have employees working and reporting income in a state that has such a mandate. For example, Wisconsin does not have a state retirement savings program mandate, but the state of Illinois does have a mandate. A business located in Wisconsin that also has the requisite number of employees working and reporting income in Illinois would be required to register for the Illinois Secure Choice Savings program for those employees or offer a private retirement plan for them that satisfies the mandate. If it is the latter, the employer would have to file for an exemption with the state of Illinois and demonstrate proof of their private retirement plan.
Another thing to consider is that unlike 401(k) plans, state-facilitated IRAs are not eligible for up to $16,500 in SECURE2 Act tax credits. Their contribution limits are not as high as 401(k)s. Many state programs also require the employer to do their own plan administration—filing, reporting, adjusting contributions limits, and more. This can be burdensome to smaller businesses that don’t have the time or staff to do complex plan management.
Update on the States
Here is a brief update on the enacted state-facilitated retirement programs as of June 2023.
The CalSavers program offers a traditional IRA in addition to a Roth IRA, and has oversight from a public board of directors. Recent legislation expands the program to almost all employers with at least one employee (sole proprietors are excluded). Employers must register for the program by Dec. 31, 2025 or offer a private plan that meets the state mandate. CalSavers has begun to notify businesses about penalties for noncompliant employers.
The Colorado Secure Savings Program requires businesses with five or more employees to offer a workplace retirement program. The state implemented its program and employers can begin registering.
Connecticut launched the MyCTSavings retirement savings program in early 2022 and established deadlines for businesses to register their employees. Businesses with 5 or more employees were required to register by Aug. 31, 2023. This program requires businesses with five or more employees and no retirement plan to participate in a state-facilitated IRA program. Noncompliant employers may be subject to civil action and court fees if they fail to enroll an employee in a timely fashion.
The state has a proposed launch of Jan. 1, 2025 for Delaware EARNS (Expanding Access for Retirement and Necessary Savings), a mandatory state-facilitated retirement savings program (Roth IRA). Businesses with five (5) or more employees that have been in operation for at least six months must register for the state program if they already do not have an auto-IRA plan for all employees or sponsor a qualified retirement savings plan. Any employee 18 years of age or older who receives wages in Delaware qualifies to participate and there is an employee opt-out option. Contribution amount per pay period will be 3 percent to 6 percent. There is an annual auto-escalation of 1% or 2% with a maximum of 15%. Any business failing to comply will face a penalty of $250 per employee per year, up to a maximum of $5,000 per year.
The state has created the Hawaii Retirement Savings Program, a mandatory state-facilitated Roth IRA program that every business in operation for at least two years with at least one (1) employee must participate in, if they have not offered or maintained a qualified retirement plan for some or all employees at any time within the past two years. The state has not set a launch date yet but certain parameters do exist, including an employer requirement to notify employees of the opt-in and the employee's option to opt out. Presently, the contribution amount default will be 5% per pay period, but this is flexible.
There will be penalties for failure to provide written notification to employees of the opt-in, as well as financial stakes that include making up missed contribution amounts in the amount each covered employee would have contributed (plus 6% interest rate). In addition, there will be a penalty of $25 for each month the covered employee was not enrolled in the program and $50 for each month they continue to be not enrolled after the date the original penalty is assessed.
The Illinois Secure Choice Retirement Program is a mandatory state-facilitated Roth IRA savings program that plans to send enforcement notices to noncompliant employers starting in 2022. Employers that do not comply may face penalties of $250 per employee for the first year, and $500 per employee for each subsequent year depending on business size. The final wave of implementation was completed on Nov. 1, 2023.
Tentatively scheduled to launch Jan. 1, 2024, employers with 5 or more employees who have been in operation for at least two years and have no retirement plan will be required to participate in the Maine Retirement Savings Program. The registration deadline for businesses with 15 or more employees is April 30, 2024. Businesses with 5-14 employees will be required to register no later than June 30, 2024. The program will be auto-enroll with an opt-out option, plus there will be a 5% default contribution limit (flexible) that includes an auto-increase of 1% annually, up to 10%. Self-employed and individual contractors are expected to participate.
The MarylandSaves program requires businesses of all sizes to offer employees automatic enrollment in a payroll-deduction IRA. The MarylandSaves program launched in September 2022.
Massachusetts legislation differs from other states in that it applies only to the non-profit sector. The Massachusetts CORE Plan is voluntary and allows non-profit organizations with 20 or fewer employees to participate in the 401(k) multiple employer plan (MEP) administered by the state. Participants must have payroll administered by an eligible third party.
The Secure Choice Retirement Program, which has a scheduled launch date of Jan. 1, 2025, is mandatory for employers (for-profit and non-profit) with five (5) or more eligible employees. The business must have been in operation for at least 12 months and cannot have offered a qualified retirement plan in the previous 12 months. The plan features auto-enrollment for employees, who must receive wages subject to state income tax, and an opt-out option.
Pending the governor's signature, the Show-Me MyRetirement Savings Plan is a voluntary Open MEP for businesses with 50 or fewer employees. It is scheduled to launch Sept. 1, 2025, and employers (for-profit and non-profit) that have not had a plan within the past two years would be eligible to participate. Employees 18 years of age and old receiving wages in Missouri would be eligible and be automatically enrolled. There is the ability for employees to opt out, as well.
Pending the governor's signature, the Employee Savings Trust Program is mandatory for employers with more than five (5) employees. Its launch date is scheduled for July 1, 2025. Participants (for-profit or non-profit) must be operational for at least 36 months and cannot have offered a qualified plan within current or previous three calendar years.
There will be four registration deadlines for employers based on employee size, starting with 1,000 employees (July 1, 2025) and moving to 500 to 999 (Jan. 1, 2026), 100 to 499 (July 1, 2026), and fewer than 100 (Jan. 1, 2027). Employees must be 18 or older, receive wages subject to Nevada income tax, and have worked at least 120 days for the employer. They will be auto-enrolled but there is an opt-out option.
The New Jersey Secure Choice Savings Program requires employers with 25 or more employees who have been in business for at least two years to offer a retirement plan (Roth IRA, with a traditional IRA as an alternative election). Smaller or newer employers can join voluntarily.
New Mexico plans to offer two voluntary retirement programs starting July 2024; NM Work & Save IRA and NM Retirement Plan Marketplace. The program will have auto-enrollment and give employees the choice of opting out. All employers whose primary place of business is located in New Mexico may participate. Eligible employees include those 18 and older who receive wages in New Mexico.
The New York State Secure Choice Savings Program was originally voluntary, but legislation has been passed to mandate participation in the program for businesses with 10 or more employees. Eligible employers had to have been in business for at least two years and without a qualified retirement plan for the two years prior.
The OregonSaves program has made great strides in helping private-sector workers who don’t have access to workplace retirement plans. Employers are currently required to automatically enroll employees in the IRA savings program if they do not offer their employees a retirement savings plan. The employer penalty for non-compliance is $100 an employee, up to $5,000 a year.
The state plans to launch VT Saves in July 2025 after the governor signed into law on June 1, 2023. This program will be mandatory for businesses with 1 or more employees that have not been in operation during the current and prior calendar year and has not offered a specified tax-favored retirement plan within the preceding two years. Registration deadlines for businesses are based on employee size beginning with 25 or more employees (July 1, 2025), then 15 to 24 employees (Jan. 1, 2026), and 5 to 14 employees (July 1, 2026).
Employees must be 18 or older and receive wages in Vermont to be eligible. They will be auto-enrolled but can opt-out of the plan that has a default contribution amount of 5% per payroll period and an annual auto-escalation from 1% up to 10% maximum.
Employers face noncompliance penalties, including $10 per employee prior to Oct. 1, 2025; $20 per employee between Oct. 1, 2025 and Sept. 30, 2026, and then $75 per employee after Oct. 1, 2026.
RetirePath Virginia launched in July 2023 and requires employers with 25 or more employees to participate if they have been in business at least two years and don’t offer an employee retirement plan. The goal is to offer nearly 800,000 private-sector employees a chance to start saving for retirement.
About 131,000 Washington State businesses don’t offer workplace retirement plans. That translates to roughly 2 million employees with no retirement savings. In response to this crisis, the state has established its Retirement Small Business Marketplace to help small companies adopt retirement savings programs for their workforces. Participating financial service providers offer low-cost plans to employers with 100 or fewer employees, including sole proprietors and the self-employed.
The marketplace currently offers SIMPLE, Roth, traditional IRAs, and 401(k) plans to choose from, based on the type of business and the individual’s financial planning goals.
Regardless of Your State, You Do Have Choices
Some of the state retirement savings programs may be “mandatory”, but employers have the option to adopt a qualified retirement plan that exempts them from participating in the state program. In some cases, a state-run IRA may not be the best fit for your business. For example, you may prefer a traditional 401(k) plan that has higher contribution limits for employees. Or you may prefer a plan that requires less time, staff, and cost to manage, like the Pooled Employer Plan (PEP). It all depends on your business needs and the savings goals of your employees. When in doubt—be sure to compare your options.
1Federal Reserve, Report on Economic Well-Being in U.S. Households in 2022, May 2023
2Setting Every Community Up for Retirement Enhancement. Under the SECURE Act, eligible new plans can potentially get up to $5,000 per year for three years in new plan tax credits with an additional $500 per year with auto-enrollment.