Retirement benefits are consistently ranked as a top priority for both employees and job seekers. Yet, not every business offers them. There are many reasons behind this: no federal law mandates retirement plans, some companies may not fully understand the setup process, and others may assume the costs are too high. However, this landscape is evolving as more states begin to require businesses to offer retirement savings options.
Quick Overview of State-Mandated Retirement Plans
- Businesses in states with mandates must offer employees a retirement savings plan, either through a state program or a private option.
- Most mandates apply to employers with five or more employees who don’t already provide access to a retirement plan.
- Many state-sponsored options are Roth IRAs, although plan features differ.
- Noncompliance can lead to penalties ranging from $250 to $750 per employee, depending on the state.
Let’s explore what these state mandates entail, where they are active or pending, and how your business might be affected. You can also check specific requirements by state below.
What Are State-Mandated Retirement Plans?
State mandates require employers to provide access to a retirement savings option. This does not mean you must choose the state-run program; private plans are also allowed, giving businesses some flexibility.
To date, 19 states have either launched or are developing retirement savings programs. Most apply to private-sector employees, with Massachusetts currently limiting participation to non-profits.
These mandates aim to close the growing retirement savings gap:
- Nearly 45% of U.S. households have no retirement savings.
- The Brookings Institution notes increasing disparities in retirement plan access.
- Over 57 million private-sector workers lack access to employer-sponsored retirement plans.
Studies show that employees are far more likely to save when their workplace offers a plan. In fact, those with access to payroll-based retirement programs are 15 times more likely to save.
How Do These Programs Work?
Most state plans are Roth IRAs—contributions are taxed now, but withdrawals in retirement are generally tax-free. Some states also offer traditional IRAs. Though features vary, there are common elements across programs.
Employer Considerations:
- Businesses with five or more employees typically must participate unless they already offer a plan.
- Some states, like Oregon and Connecticut, integrate easily with major payroll providers, including Beyond.
- If you already offer a plan, you can usually apply for an exemption on your state’s portal.
Employee Considerations:
- Automatic enrollment usually occurs after 30–60 days of employment.
- Typical payroll deductions range from 3% to 5%, though employees can opt out or adjust contributions.
Are There Penalties for Noncompliance?
Yes. Fines vary by state. For example:
- Oregon may fine up to $5,000 annually per employer.
- Illinois penalties begin at $250 per employee in the first year, increasing to $500 in the second year.
Regulations can change, so it’s wise to stay informed through your state’s official website.
Should You Use a State Plan or a Private Provider?
While state plans are often low-cost and simple to implement, they may be less flexible than private plans. Employer-sponsored plans might offer broader investment options, higher contribution limits, and federal tax incentives.
The IRS offers tax credits for eligible businesses (with fewer than 100 employees) to offset up to 50% of setup and administrative costs. These can total between $1,000 and $3,000 annually. Beyond can help you explore these savings opportunities.
Contribution limits also vary:
- Roth IRAs (common in state plans): $7,000 annually (with a $1,000 catch-up for those 50+).
- 401(k)s (common in private plans): $23,500 annually (with a $7,000 catch-up).
Comparison Chart: State Plans vs. Employer-Sponsored Plans
| Feature | State Plan | Employer-Sponsored Plan |
|---|---|---|
| Auto-enrollment | Yes | Optional |
| Employee Opt-out | Yes | Yes |
| Savings Type | Roth IRA or IRA | 401(k) or similar |
| Investment Options | Limited | Broad |
| Contribution Limit | $7,000 | $23,500 |
| Catch-up (50+) | $1,000 | $7,000 |
| Employer Match | Not allowed | Allowed |
| Tax Credits | No | Yes (if eligible) |
| Employer Cost | Usually none | Possible setup/admin fees |
| Employer Contribution Tax-Deductible | N/A | Yes |
Still Deciding?
Our Beyond small business retirement guide can help you weigh your options. Whether you opt into your state’s plan or create a custom solution, there are tools to support your path forward.
State-by-State Updates
Here’s a summary of current and pending mandates. For each state, employers may use their own provider or participate in the state’s plan:
Active Programs: California, Colorado, Connecticut, Delaware, Illinois, Maine, Maryland, Massachusetts (nonprofits), New York, Oregon, Virginia, Washington
Pending Implementation: Minnesota, New Jersey, New Mexico, Vermont
Voluntary Marketplace: Washington (small business marketplace)
Recently Enacted: Rhode Island (Secure Choice Program)
Proposed Legislation: Alaska, Arizona, Arkansas, Idaho, Indiana, Iowa, Kentucky, Louisiana, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Ohio, Oklahoma, Pennsylvania, Utah, West Virginia, Wisconsin, Wyoming
Be sure to consult your accountant or Beyond payroll advisor for help navigating your responsibilities. This guide is for informational purposes only and not intended as legal or tax advice.
