State-mandated retirement plans are the result of legislation requiring small businesses to provide retirement benefits to their employees. These employers now have the added responsibility of choosing a plan that’s right for their business and performing various administrative tasks to comply with the laws. Their employees must also find the plan beneficial – a critical aspect to retaining top talent.
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Retirement Plan Mandates Are Becoming a Reality for These 16 States:
California, Oregon, Illinois, Maryland, Colorado, Connecticut, New York, New Jersey, Virginia, Vermont, Washington, Hawaii, New Mexico, Maine, Massachusetts, and Delaware.
While federal retirement plan mandates are still a ways off, 16 US states are considering the use of state-sponsored retirement savings programs - ten of which are considering retirement plans required by law. While this is an important step in fully addressing the retirement gap and its effects on the private sector, what does it mean for business owners?
Depending on where your business operates, there are specific retirement plan adoption deadlines that your company will be required to meet to continue operating legally and avoid penalties. To help you decipher these mandates, we've broken them down by state. First up, are retirement plans mandatory in California for all companies?
California: Large and Small Companies Alike Must Have Retirement Plans
California launched their state-sponsored retirement plan, CalSavers, in 2016, which allows companies to choose from a Roth IRA or a Traditional IRA for employees.
On June 30th, 2022, all California businesses with five or more employees are required to enroll in CalSavers or a qualified plan. On August 26th, 2022, Governer Gavin Newson expanded CalSavers to include all employers with at least one elligible employee. Those who have less than five employees will not be required to institute Calsavers or a qualifying alternative until December 31st, 2025.
If California enterprises fail to comply, they will be fined $250 per eligible employee if non-compliance continues for 90 days or more after the notice, and $500 per eligible employee if non-compliance continues for 180 days or more after the notice.
Connecticut: Active Retirement Mandate as of March 2022
The law that created Connecticut’s state-sponsored retirement plan program, MyCTsavings, passed in 2016. Each participant may choose between a Roth or Traditional IRA. Both rely on payroll deductions. It applies to any employer who has paid at least $5,000 in wages the proceeding year.
The program, which exited its pilot phase in March 24, 2022, is now officially active. The program has begun its implementation timeline. The state-administered plan or a qualifying plan will be required as of
The program is designed, implemented, and monitored by a state-appointed board.
This program will help those who desire to save retirement, but do not have proper access to a retirement plan through their employer.
Elligible employers who are not enrolled in MyCTSavings or a qualifying plan past their respective deadlines may face civil action.
Washington State: Active Retirement Plan Marketplace, Seattle Mandate not Yet Implemented
The city of Seattle enacted their mandatory retirement savings program in 2017, which is overseen by the mayor.
In 2018, officials delayed the implementation of the program pending possible action by the Washington State Legislature on a statewide auto-IRA program. As of 2022, Seattle's retirement mandate has still not been implemented.
However, Washington State has implemented a retirement plan marketplace. Retirement plan marketplaces allow each employee to take charge and choose the IRA that is right for them. Employers do not have to sponsor the plan to the employees directly, as each employee can voluntarily contribute to their retirement account through the retirement marketplace.
There are no penalties as the program is voluntary.
Oregon: Companies with 4 or Fewer Employees Must Register by Early 2023
Oregon also requires employers offer retirement plans to employees, be it through their state-sponsored plan, OregonSaves, or a private qualifying plan. The state does not require employer contributions.
The state’s retirement plan mandate program has been implemented in six phases, starting with private companies with the largest number of employees. Companies with four or fewer employees are the last wave to be required to adopt a plan - the deadline for registration being early 2023 according to the OregonSaves website.
As of January 1st, 2020, if a company is cited for non-compliance, they must pay a fine of $100 per affected employee, up to a maximum of $5,000 per calendar year.
Illinois: Secure Choice Savings has New Registration Waves in 2022 and 2023
Illinois' state mandated retirement plan, Secure Choice, was enacted in 2015 and administered by the Illinois Secure Choice Savings Board.
The program formally rolled out in phases starting with companies that employ more than 500 employees in 2018. As of 2021, all companies with at least 25 employees are required by law to have a retirement savings plan.
There are two additional employer registration waves left: employers with 16-24 employees were required to register by November 2022 and employers with 5-15 employees will be required to register by November, 2023.
Companies that do not enroll in Illinois Secure Choice or a qualifying private plan will face a penalty of $250 per employee for the first year, and $500 per employee for each following year.
Maryland: Retirement Program Enters Pilot Phase
Maryland Saves, Maryland’s mandated retirement savings program, was enacted in 2016 and has entered its pilot phase. Before choosing Maryland $aves, be sure to explore all options as an Roth IRA may not be right for all businesses.
Maryland Saves has officially rolled out its program. Employees can sign up their business on the Maryland Saves website.
Maryland Saves is a completely voluntary system. No penalties are involved.
Colorado: Retirement Savings Program in Pilot Phase
Colorado is in the process of implementing their new mandated retirement savings program, Colorado Secure Savings Program, after it’s legislation passed in 2020.
Colorado has now officially entered its pilot phase. A select number of Colorado businesses have been chosen to participate in the state-administered plan. A widespread launch is planned for early 2023. Exact dates are unknown.
The mandate applies to any Colorado company without an existing plan that employs five or more employees and has been in operation for at least two years. Employer contributions, and their resulting tax benefits for companies, are not permitted unless a qualifying private plan is adopted.
Employers found to be non-compliant will face a fine of up to $100 per year for each unenrolled eligible employee, with a maximum penalty of $5000 in a calendar year. The roll-out of the program will be done in phases, although the timeline has not been revealed as of yet.
New York’s Secure Choice Savings Program was originally enacted in 2018 and is an Auto IRA plan.
The program was instituted in October of 2021, is currently active and impacts companies without a qualifying private plan.
Businesses that do not enroll will face a penalty of $250 per employee for the first year, and $500 per employee for each following year, and the fines go up from there for each consecutive year of non-compliance.
New Jersey enacted the New Jersey Secure Choice Savings Program in 2019, requiring companies with 25 or more employees to either opt into their state-sponsored auto-IRA retirement plan, or into another qualifying private plan.
Per the original bill, the program was to become effective on March 28, 2021, with the objective of enrolling everyone by the end of 2021. Due to the pandemic and several other delays, however, the program is not currently operational.
If an employer does not comply by the first year, they receive a written warning from the state; the second year, they are fined $100 per employee not enrolled; the third and fourth year, they are fined $250 per employee not enrolled; the fifth year onward, they are subject to a $500 fine per employee not enrolled in the program. Those fines increase for any employer who collects employee contributions.
Virginia: Will Begin to Enroll Employers in Summer of 2023
In 2021, Virginia’s mandatory retirement savings program, the VirginiaSaves Program, was enacted into law. Under the bill, Virginia employees 18 or older working more than 30 hours per week who do not already have access to an employer-provided retirement plan will be automatically enrolled in a state-facilitated individual retirement account (Roth IRA) savings plan. Tax deductible employer contributions are prohibited without a qualifying private plan in place.
The design of the program is still being completed by the administering board, and they are also still establishing an implementation timeline. That said, the pilot program is set to launch before March 2023 followed closely after by the official program in July 1, 2023.
Maine: Auto-IRA Program Will Begin Rolling Out in 2023
As of June 24th, 2021, Maine passed legislation to establish a mandated auto-IRA plan for companies with more than 5 employees. Overseen by the Maine Retirement Savings Board, the state-sponsored program is a payroll deduction Roth IRA that must be offered by any individual or entity engaged in business in the state of Maine that has been active for at least 2 years. Employers may opt out of the state-sponsored program if they offer another qualifying plan.
The plan will be rolled out in three implementation phases:
The penalties for non-compliance prior April 1, 2024 is, at maximum, $10 per employee. Between April 1st 2024 and March 31st 2025, the maximum fine per employee will be $25. From April 1, 2025 to September 30th, 2026, the maximum penalty per employee goes up to $50.
New Mexico's state-run program is the most unique so far. For one, it is not a mandate, but instead is created so employers and employees can opt-in to a plan should they want one. Secondly, it has been instituted as both a retirment marketplace and a Roth-IRA. What this means is employers and employees have the option to join the Roth-IRA or "shop" for other options on the New Mexico retirement marketplace.
While originally slotted for early 2021, the deadlines for both the Roth IRA and marketplaced have been delayed until July 1st, 2024.
Because the system is opt-in, employers will not be punished for not offering a qualifying plan. However, the state-administered Roth IRA may not suit the needs of every business in New Mexico.
The plan will be a payroll deduction IRA. This means each employer is required to automatically enroll each employee into the program if they do not already sponsor a qualifying plan. Those who are enrolled will automatically have a portion of their salary placed in an IRA. Any employee may opt-out at any time.
The bill passed in May of 2022. The program is expected to be operational by July 1st, 2024.
If eligible employees are not automatically enrolled, employers must:
Like other state-administered plans, the program with be an auto-enroll Roth IRA that draws from automatic payroll contributions. This means those who are enrolled will have a portion of their paychecks placed directly into their IRA before they receive their paychecks. The plan is monitored by an investment company and is of no cost to the employer. The Delaware EARNS program will automatically enroll employees when their employer signs up for the program. Employees can opt out at any time.
The Earns Act is set to be implemented by January 1st, 2025. This is subject to change.
A penalty structure has not been currently defined by the board.
Vermont's state-administered retirement plan, Green Mountain Secure Retirement Plan, will be a state-wide Multiple Employer Plan. It will be voluntary for eligible employers. Elligible employers are those who have less than 50 or less employees that do not already offer a retirement savings option to employees. Employers who do enroll will have their employees auto-enrolled with the option to opt out.
The program was signed into law in 2017, with a deadline for January 2019, however, the plan has since stalled.
Because the system is opt-in, employers will not be punished for not joining the state's plan or offering a qualifying plan. However, the state-administered Multiple Employer Plan may not suit the needs of every business in Vermont.
Massachusetts: Voluntary State-administered Retirement Plan for Non-profits
Since most small non-profits cannot afford to offer retirement benefits, Massachusetts introduced the Massachusetts CORE Plan. This plan is reserved for non-profits with 20 or less employees. Employers that enroll their non-profit in this plan will auto-enroll their employees after 60 days, however, employees may opt out at any time. This retirement plan is funded using pre-tax dollars.
This program is available now. Massachusetts's has also looked into expanding this program to all businesses with more than 25 employees, however this legislation has not passed as of yet.
Because the system is opt-in, employers of non-profits will not be punished for not joining the state's plan or offering a qualifying plan.
A Retirement Plan Built for Your Business
If your state has not instituted a retirement plan, or your looking for a plan that is designed around your business needs, we've got the solution: