State-facilitated Workplace Retirement Programs: What Businesses Should Know
- Employee Benefits
6 min. Read
Last Updated: 08/01/2022
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 still have no access to retirement plans. In New York State, that number is in the millions. The Federal Reserve reports that roughly a quarter of non-retired adults have no retirement savings.
To deal with this crisis, 14 states and two cities have enacted legislation and five 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, Vermont, and Washington.
Enacted: Maryland, Colorado, Connecticut, New York state, New Jersey, Virginia, Maine, Vermont, and New Mexico, and the city of Seattle, WA.
Fully implemented and active—California, Illinois, Massachusetts (for non-profits), Oregon, and Washington
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 SECURE1 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 July 2022.
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 plans to launch a pilot program in October 2022 with enrollment scheduled to start in March 2023. Employers with 5 to 25 employees may be eligible for a $300 program grant.
Connecticut launched the MyCTSavings retirement savings program in early 2022 and established deadlines for businesses to register their employees. The deadline for businesses with 100-plus employees has passed. Businesses with 26 to 99 employees have to register by Oct. 31, 2022, while businesses with 5 to 25 employees must register by Oct. 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 maintained a qualified retirement plan 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 $500 per employee for each subsequent year depending on business size. Two more waves of implementation are also planned: employers with 16-24 employees must register by November 2022, and those with 5-15 employees must register by November 2023.
Tentatively scheduled for April 1, 2023, employers with 5 or more employees who have been in operation for at least two years and have no retirement plan. They may be required to participate in the Maine Retirement Savings Program unless they register for exemption. The registration plans to be implemented in three phases, starting with a proposed deadline of April 2023 for businesses with 25 or more employees, followed by October 2023 (15-24 EEs), and April 2024 (5-14 EEs). The program will be auto-enroll with an opt-out option, plus there will be a 5% default contribution limit (flexible) that includes an auto-increase of 1% annually, up to 8%. Self-employed and individual contractors are expected to participate.
The Maryland$aves program requires businesses of all sizes to offer employees automatic enrollment in a payroll-deduction IRA. The Maryland$aves program has implemented a pilot in 2022 with a scheduled launch for 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 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.
In July 2024, New Mexico is planning to launch a voluntary program that offers a Hybrid Roth IRA or Marketplace plan. The program will have auto-enrollment and give employees the choice of opting out. Since the program is voluntary, there will be no penalties imposed for non-compliance.
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. Launch date is December 2022. 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 with five or more employees are currently required to automatically enroll employees in the IRA savings program if they do not offer their employees a retirement savings plan. Businesses with four or fewer employees are expected to register for the program by March 1, 2023 or they can begin participating now. The employer penalty for non-compliance is $100 an employee, up to $5,000 a year.
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 or fewer employees. Self-employed business owners can also participate. Implementation of the program has been postponed and no launch date has been announced. The program is scheduled to launch in December 2022. Employees will be automatically enrolled but have the ability to opt out. Employers also have the option of matching contributions.
Tentatively scheduled to launch its pilot in March 2023 with a possible program launch on July 1, 2023, RetirePath Virginia 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.
1Setting Every Community Up for Retirement Enhancement. Under the SECURE Act, eligible new plans can potentially get up to $15,000 in tax credits.