Since the establishment of eight state-sponsored retirement programs in 2017, two more states have enacted legislation to address the country's looming retirement crisis. New York and Vermont have legislation on voluntary programs, while California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, Oregon, and Washington have mandated programs.
In all, 28 states have introduced legislation for state-sponsored retirement programs, although some states are taking more aggressive approaches on timing and implementation, as well as assessing penalties for non-compliance.
The following states also have introduced legislation: Arizona, Colorado, Indiana, Iowa, Kentucky, Louisiana, Maine, Minnesota, Nebraska, New Hampshire, North Carolina, North Dakota, Ohio, Rhode Island, Utah, Virginia, West Virginia, and Wisconsin.
The pre-emptive efforts to stem the surge of retirement-age individuals with insufficient savings trace their impetus to a 2015 report by the National Institute on Retirement Security (NIRS) that found that the average working U.S. household has virtually no retirement savings. Research revealed a median retirement account balance of $2,500 for all working-age households and $14,500 for near-retirement households. In addition, 62 percent of households age 55-64 hold less than a year's worth of income, far below what's needed to maintain their standard of living in nonworking years.
The NIRS report revealed that 45 percent of working-age households — nearly 40 million people — have no retirement account assets, such as employer-sponsored 401(k) type plans or individual retirement accounts (IRAs).
If your business is located in a state with its own program, you have options – including 401(k)s, SIMPLE IRAs, and other plans that can help you meet state requirements.
State plans target workers in small companies
State-sponsored retirement plans generally focus on people working for small companies, as well as younger workers, minorities, and low- to moderate-income earners. The state programs:
- Are usually designed as Roth individual retirement accounts (IRAs);
- May be mandated for businesses of a certain size if they don't offer a retirement plan for their employees;
- Use investment firms and low-risk investments chosen by the state;
- Will require participating employers to set aside a percentage of every worker's salary each month for the retirement fund — usually 3 percent;
- Allow workers to opt out of contributing via payroll deduction;
- Minimize investment and management costs;
- Improve retirement for people with limited savings options.
What developments have been made in each of the 10 states that have programs in some state of development or implementation?
In late November 2018, the Golden State began a pilot for the implementation of a state-run automatic Roth IRA plan for employees who lack access to retirement plans. Under the renamed CalSavers program (formerly California Secure Choice), employers with five or more workers or an employer of providers of in-home services will be required to register for CalSavers or offer an employer-sponsored retirement plan.
This portable plan, which in July 2019 will also offer a traditional IRA in addition to a Roth IRA, will have oversight from a public board of directors. By June 30, 2020, employers with 100-plus staff must be registered for CalSavers. By June 30, 2021, businesses with 50-plus employees must be registered. By June 30, 2022, employers with five or more workers must be registered. Each business size has until these deadlines to implement the program or face potential fines.
Connecticut, which has 600,000 working people with no access to a work-based retirement plan, announced that it will begin phasing in its Retirement Security plan on Jan. 1, 2019, that requires businesses with five or more employees to offer employees a retirement plan. However, businesses that already offer their employees work-based retirement programs will be exempt.
No decision has been made to how the phase-in will be structured, although Connecticut lawmakers have indicated it might be similar to Oregon's model that includes a three-year phase-in for companies of differing size.
Some employer requirements have been established. An employer will not be responsible for contributing to the program. Employers must provide an eligible employee with informational materials regarding the state-run program within 30 days of hire and within 60 days of providing the information, the employer must enroll the employee in the state-run IRA program. If an employee does not elect a certain percentage of their pay go toward their plan, the default contribution level will be 3 percent of the participant's taxable wages. A covered employee may opt out of the program.
At the present time, there is no established fines for noncompliance, but employers could be subject to civil action and court costs if they fail to enroll an eligible employee or fail to remit contributions by the employee to the program.
The Illinois Secure Choice Retirement Program began a three-month pilot program with eight companies and has shown some success. The program features an automatic-enrollment, payroll-deduction retirement savings account for certain private-sector employees whose employers do not offer retirement plans.
After the pilot ended in the summer of 2018, the state began registering employers who had been in business for at least two years by business size, beginning with a mandate for large companies (500 or more employees) and working toward businesses with 25 or more employees - the minimum required to participate in the plan. Businesses can register at any time but each group size did have a required deadline.
- July 2019 for employers with 100 to 499 employees
- November 2019 for employers with 25 to 99 employees
Employees who do not opt out of the program will be automatically enrolled at a contribution rate of 5 percent.
Program designers expect the program to be self-sustaining, with no additional costs to the state outside of startup administrative funds.
The Maryland Small Business Retirement Savings Program requires employers of all-sized businesses that do not offer a workplace retirement program to offer employees automatic enrollment in a payroll-deduction IRA. By offering their own plan or using the state-sponsored plan, employers will be exempt from paying an annual $300 filing fee. Employees can choose their own contribution rate or opt out of the program.
The program is expected to start in late 2019 and is intended to help the nearly one million employees in Maryland who work for businesses that do not offer a retirement savings plan a chance to prepare for retirement.
Additional employer responsibilities have not been released nor have any specific deadlines for registering for the plan or penalties for noncompliance.
The Massachusetts CORE Plan has been established for nonprofit organizations with 20 or fewer employees who choose to adopt the retirement savings plan. This multiple employer 401(k) retirement plan does not extend to private-sector, for-profit companies.
While offering employees a way to save for retirement, employers can benefit from the potential to lower the costs to the organization and limited administrative responsibilities since oversight and fiduciary support come from the Office of the State Treasurer.
Employers are eligible to offer the CORE Plan if they:
- Are a registered 501(c) organization with the IRS
- Official address registered in Massachusetts
- Registered as a nonprofit in Massachusetts
- In good standing as determined by required annual filings with Massachusetts
- Gave 20 or fewer employees
- Have payroll administered by an eligible third-party payroll service
The Garden State has created the New Jersey Secure Choice Savings Program Fund to offer the more than two million employees in the private sector who don't have access to a workplace retirement savings plan an opportunity to save for retirement. Employers with 25 or more employees (including leased employees) that have been in business for at least two years and have not offered a retirement plan in the past two years will be required to offer the new program. Smaller or newer employers can join voluntarily.
Employers must auto-enroll participants and deduct 3 percent of the employees' pay, unless the participant elects a different rate to deduct or opts out of the program. Any employee who opts out is eligible to enroll in future open enrollment periods.
Employers face potential fines for noncompliance, including annual penalties of $500 per employee for failure to properly enroll eligible employees. There also are penalties for failing to remit any portion of the employees' contributions to the fund, including a $2,500 fine for a first offense and $5,000 for every offense thereafter.
There is an option for employers not to participate in the program if they sponsor their own defined plan, such as a 401(k) or an automatic payroll-deduction IRA with a private provider.
The board overseeing the program might set up a website with information for employers.
The program must be implemented within two years of March 29, 2019, - the day the law was passed. The board can delay launch up to one year, and the program might use the model of other states and roll out the program in two phases based on business size.
Gov. Andrew Cuomo signed in to law in April 2, 2018, that the state must establish the New York State Secure Choice Savings Program to help the nearly 3.5 million private-sector workers in the state who have no access to an employer-sponsored retirement savings plan. New York's plan follows those in a number of state programs that are either currently operating or are scheduled to be implemented in the coming years. The state-sponsored, Roth IRA-structured program is voluntary for employers and the target date for implementation is April 6, 2020. However, if adequate funding has not been obtained, implementation could be delayed.
The OregonSaves retirement savings program has made great strides, aiding more than 47,000 private-sector workers without access to employer-sponsored retirement plans. The automatic Roth IRA plan launched in July 2017, and has steadily gained participants, with an employee opt-out rate of about 21 percent. Program administrators anticipate that nearly one million Oregon workers will have access to the savings plan by the end of 2020.
As of Dec, 31, 2018, nearly 81,000 employees have been entered into the program - but only 47,000 have enrolled, with about 23,000 contributing, and another 17,000 pending for various reasons.
There are pending registration deadlines employers need to know about, including May 15, 2019 (for 10-19 employees); Nov, 15, 2019 (for 5-9 employees); and May 15, 2020 (for 4 or fewer employees).
The state began planning to implement the Green Mountain Secure Retirement Plan in 2017, a voluntary multiple employer plan (MEP) designed for employers with 50 employees or fewer (including coverage for self-employed individuals) and employers that do not currently offer a retirement plan to their employees. No launch date has been announced.
The plan will be funded by employee contributions with an option for future voluntary employer contributions. All employees who work for employers who choose to participate will be enrolled in the plan, but employees will be able to opt out.
With more than 2 million working Washingtonians lacking access to retirement savings plans at work and more than 131,000 Washington businesses offering no retirement savings arrangements to their employees, the Washington State Department of Commerce established its Retirement Small Business Marketplace to help small companies fund retirement savings for their workforces. Participating financial service providers offer low-cost plans to employers with fewer than 100 employees, including sole proprietors and the self-employed.
The marketplace currently offers nine types of retirement plans — including IRAs and 401(k) plans — for employers and employees to choose from, based on the type of business and individuals' financial planning goals.
Businesses have retirement plan options in these and other states
As progress continues with these various programs, lawmakers in other states may be weighing the merits of a state-funded retirement plan. If your business is located in one of the states mentioned above or you’re considering offering a retirement plan yourself, you have options – including 401(k)s, SIMPLE IRAs, and other plans that can help you meet state requirements. It's important to compare your options and decide what best fits your needs as well as those of your employees.
A previous version of this article was published May 18, 2017.