Guide to State-Mandated Retirement Plans
As an employer, understanding state-mandated retirement plans and the laws surrounding them is critical to ensuring your business complies with state requirements and provides valuable benefits for your employees. Learn how these plans affect your business and how to stay compliant with ESS – Employer Support Services.
As a leader of human resources services, our team is equipped with the skills and knowledge to help your business succeed. Whether it’s ensuring compliance with state-mandated retirement plans or providing an easy-to-use payroll system, ESS has you covered. Contact us today to discuss your goals.
What Are State-Mandated Retirement Plans?
Many states require employers to offer retirement benefits through state-mandated retirement plans. If your state requires these plans, you generally have two choices: enroll your employees in a state-sponsored retirement program or create your own retirement plan through the private market.
State-mandated retirement plans address the retirement savings gap. Research shows that many working households have little to no retirement savings, and employees are more likely to save when they have access to a retirement plan from their employer. Unfortunately, less than half of businesses with fewer than 100 employees offer retirement benefits.
[Related: How Employee Benefits Affect Retention Rates]
Types of State-Mandated Retirement Plans
Most state-sponsored retirement plans are Roth individual retirement accounts (IRAs). These plans are funded with post-tax income, meaning the contributions your employees make to the plan are deducted from their income after taxes. The advantage? These contributions generally won’t be taxed when withdrawn at retirement.
Who Do State-Mandated Retirement Plans Serve?
State-mandated retirement plans target low to moderate-income earners who work for small and medium-sized businesses in the public sector. It’s important to note that these plans are separate from state-funded retirement programs for public employees.
The specifics for state-mandated retirement plans and their requirements vary depending on your state, the size of your organization, and how long it has been in business. If you don’t offer another retirement plan, you’ll generally need to enroll your employees in the state-sponsored program and handle the necessary administrative and reporting tasks. Be aware that employees also have eligibility requirements based on income thresholds.
[Related: ACA Requirements & Deadlines for 2023]
How Do These Plans Work?
While specifics can vary by state, most plans share some common features. Typically, they’re administered through payroll deductions, with employees automatically enrolled. Employees can choose to opt out or adjust their contributions. However, employers are usually prohibited from contributing to these plans, although there are exceptions, such as Massachusetts’ Safe Harbor matching contributions.
As of now, more than 30 states have considered implementing state-mandated retirement plans, with 14 states having already signed such programs into law. The following states have active state-sponsored retirement plans:
- California (CalSavers)
- Colorado (Colorado Secure Savings Program)
- Connecticut (MyCTSavings)
- Illinois (Illinois Secure Choice)
- Maryland (Maryland Small Business Retirement Savings Program)
- Massachusetts (Massachusetts Defined Contribution CORE Plan)
- Oregon (OregonSaves)
- Washington (Washington Small Business Retirement Marketplace)
Several other states have passed legislation to implement such plans, with implementation dates scheduled or pending.
Key Considerations for Employers – Compliance & Penalties
State-mandated retirement plans offer a low-cost solution with few fiduciary responsibilities for employers. However, they often have inflexible, one-size-fits-all designs. If you miss registration deadlines, your business could face penalties. Remember, offering retirement benefits can improve employee recruitment and retention, whether you choose a state-sponsored or private-market option.
Failure to comply with these requirements or missing enrollment deadlines can result in penalties, which vary by state. For specific details on your state’s requirements, we strongly recommend consulting with a retirement benefits advisor or your state’s Department of Labor. Keep in mind that legislation related to state-mandated retirement plans continues to evolve, so staying up-to-date with the latest changes is crucial.
Ensure Your Compliance with State-Mandated Retirement Plans – Contact ESS
As HR experts, our team knows the ins and outs of each state’s laws, especially concerning state-mandated retirement plans. Contact our team today by calling 225-364-3000 to ensure you are compliant and receive exceptional HR assistance and services.