States Introducing Employer-Sponsored Retirement Programs Continue to Increase
Starting with Oregon in 2017, nearly three quarters of the states across America have either proposed or enacted legislation for a state-sponsored retirement program. Some states have made it mandatory that employers offer workplace retirement programs, while others have made them voluntary to offer.
The goal has always been to address the country's looming retirement crisis. As of June 2021, 37 states have legislation on the books — enacted or proposed — for state-sponsored retirement programs; some states are taking aggressive approaches on timing and implementation, as well as assessing penalties for non-compliance.
As of this article's publication date, eight states have an active plan, including mandatory ones in Oregon, California and Illinois. The states of New York, Vermont, Washington, Massachusetts and New Mexico have active programs that are voluntary. Three others states — Connecticut, Maryland and New Jersey — are scheduled to start their mandatory programs in 2021, while Colorado, Maine and Virginia have passed legislation for mandatory programs.
The following states have introduced legislation: Hawaii, Indiana, Idaho, Kansas, Maine, Massachusetts (their current voluntary program is only for non-profit organizations), Minnesota, Missouri, Nevada, North Carolina, Oklahoma, Rhode Island and Texas.
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 at that time of 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 the states that have implemented or are developing programs?
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 offers a traditional IRA in addition to a Roth IRA, will have oversight from a public board of directors. By June 30, 2021, businesses with 50-plus employees must be registered and implement CalSavers or offer a similar program that satisfies the state mandate. By June 30, 2022, employers with five or more workers must do the same.
The state legislature passed a bill on July 21, 2020 to establish the Colorado Secure Savings Program that mandates businesses with at least five employees offer a workplace retirement program. This opened an opportunity for one million private-sector workers in Colorado to access to an IRA funded through automatic payroll deductions.
Businesses that currently do not offer a retirement savings plan will be obligated to do so through the Colorado state treasurer and under the guidance of an advisory board. The state has yet to announce a target date for the program to be implemented.
Connecticut, which has 600,000 working people with no access to a work-based retirement plan, announced that it will implement a pilot program in 2021 called the Connecticut Secure Choice Savings Plan and eventually require 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.
Connecticut lawmakers have indicated the program 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. There is a default contribution level of 3 percent of the participant's taxable wages, but an employee can change that amount as well as opt out of the program.
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, which features an automatic-enrollment, payroll-deduction retirement savings account for certain private-sector employees whose employers do not offer retirement plans, has announced that it will assess penalties for noncompliance beginning in late 2021.
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.
Employees who do not opt out of the program will be automatically enrolled at a contribution rate of 5 percent.
Beginning April 1, 2023, employers in Maine with 5 or more employees can begin registering employees for the Maine Retirement Savings Program, as mandated by legislation signed June 24, 2021. The implementation, which will begin with larger employers (25 or more employees), has three phases and will continue through April 1, 2024 (5 to 14 employees).
Policies and regulations on how the program will be run are still being developed, but details do include the eligibility of self-employed and individual contractors to participate, a well as a unique feature that requires employers to reenroll at regular intervals employees who have opted out in the past.
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 Maryland $aves program, originally schedule to begin in 2020, was delayed by the COVID-19 pandemic and is expected to start in 2021. It 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.
Specific deadlines for registering for the plan or penalties for noncompliance have not been released.
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. Legislation was introduced in February 2021 to create a state-mandated program that would require businesses with 25 or more employees to offer a workplace retirement program.
The CORE Plan, while offering employees a way to save for retirement, also provides employers the potential benefit 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 for failure to properly enroll eligible employees. There also are penalties for failing to remit any portion of the employees' contributions to the fund.
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.
A pilot program was scheduled to begin in March 2021.
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 with 10 or more employees. However, the state legislature in May 2021 passed a bill to strengthen the program, proposing to make it mandatory for businesses.
The OregonSaves retirement savings program has made great strides to help private-sector workers without access to employer-sponsored retirement plans. The automatic Roth IRA plan launched in July 2017, and has steadily gained participants. By the end of 2020, more than 70,000 worker accounts have been established and more than 4,200 employers are participating to help Oregon workers gain access to the savings plan.
The program had six enrollment deadlines for businesses, the final one on May 15, 2020 for those with four 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 the establishment of VirginiaSaves in April 2021, employers in Virginia with 25 or more employees will have an opportunity to offer nearly 800,000 individuals working in the private-sector who lack access to a workplace retirement program a chance to start saving.
Scheduled to begin no later than July 1, 2023, the exact timetable has yet to be established by the Virginia College Savings Plan Board, the entity the law put in position to develop policies and implement the program.
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 state legislature proposed to make the program mandatory but it has yet to pass.
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 April 18, 2019.