State-mandated retirement plans are gaining momentum throughout the U.S. As of June 2023, 11 states have mandated retirement plans in the pilot phase or farther, requiring companies of specific sizes to automatically enroll employees into an IRA or another qualifying private plan.
But what is a state retirement plan, how do state mandated retirement plans work, and which states have mandated retirement plans? Read on to discover the answers to these questions and more.
Retirement Plan Mandates Are Becoming a Reality for These 15 States:
California, Colorado, Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, New Jersey, New Mexico, New York, Oregon, Vermont, Virginia, and Washington
While federal retirement plan mandates are still a ways off, 15 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
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.
Timeline
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.
Penalties
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.
Colorado
Colorado's new mandated retirement savings program, Colorado Secure Savings Program, is now active in 2023.
Timeline
The registration deadlines for employers depends on the size of their business:
- 50 or more employees—March 15, 2023
- 15 to 49 employees—May 15, 2023
- 5 to 14 employees—June 30, 2023
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.
Penalties
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.
Connecticut
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.
Timeline
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
- 100 or more employees: April 1, 2022–June 30, 2022
- 26–99 employees: April 1, 2022–October 31, 2022
- 5–25 employees: April 1, 2022–March 30, 2023
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.
Penalties
Elligible employers who are not enrolled in MyCTSavings or a qualifying plan past their respective deadlines may face civil action.
Hawaii
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.
Timeline
The bill passed in May of 2022. The program is expected to be operational by July 1st, 2024.
Penalties
If eligible employees are not automatically enrolled, employers must:
- Deposit the amount that would have been made by the employee into the employee's account (interest rates apply).
- Pay a penalty of $25 for each month the covered employee was not enrolled in the program and,
- $50 for each month the eligible employee continues to be unenrolled after the penalty has been given.
Illinois
Illinois' state mandated retirement plan, Secure Choice, was enacted in 2015 and administered by the Illinois Secure Choice Savings Board.
Timeline
Completed its initial registration program in 2018–2019. Required registration dates:
- More than 500 employees: November 2018
- 100–499 employees: July 2019
- 25–99 employees: November 2019
Two new registration periods were added in 2021 with the following required registration dates:
- 16–24 employees: November 1, 2022
- 5–15 employees: November 1, 2023
Penalties
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.
Maine
Any covered employer (including covered employers with fewer than five employees) may voluntarily offer the program to its covered employees on or after April 1, 2023. 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.
Timeline
The plan will be rolled out in three implementation phases:
- 25 or more employees: April 1, 2023
- 15–24 employees: October 1, 2023
- 5–14 employees: April 1, 2024
Penalties
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 $20. From April 1, 2025 to September 30th, 2026, the maximum penalty per employee goes up to $50. On or after Oct. 1, 2026, the tier goes up to $100. These dates are still subject to change.
Maryland
Maryland$aves, Maryland’s mandated retirement savings program, was enacted in 2016 and launched to emplyers in September, 2022.. Before choosing Maryland $aves, be sure to explore all options as an Roth IRA may not be right for all businesses.
Timeline
Maryland Saves has officially rolled out its program. Employees can sign up their business on the Maryland Saves website.
Penalties
No penalties are currently involved.
Massachusetts: Voluntary
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.
Timeline
This program is available now. Massachussets has also looked into expanding this program to all businesses with more than 25 employees, however this legislation has not passed as of yet.
Penalties
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.
New Jersey
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.
Timeline
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.
Penalties
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.
New Mexico: Voluntary
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.
Timeline
While originally slotted for early 2021, the deadlines for both the Roth IRA and marketplaced have been delayed until July 1st, 2024.
Penalties
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.
New York
New York’s Secure Choice Savings Program was originally enacted in 2018 and is an Auto IRA plan.
Timeline
The program was instituted in October of 2021, is currently active and impacts companies without a qualifying private plan. Implementation is still moving forward.
Penalties
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.
Oregon
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.
Timeline
The state’s retirement plan mandate program has been implemented in six phases, starting with private companies with the largest number of employees.
Registration Deadlines:
- 100 and more employees: November 15, 2017
- 50–99 employees: May 15, 2018
- 20–49 employees: December 15, 2018
- 10–19 employees: May 15, 2019
- 5–9 employees: November 15, 2019
- 5–9 employees: March 1, 2023
Penalties
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.
Vermont: Voluntary
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.
Timeline
The program was signed into law in 2017, with a deadline for January 2019, however, the plan has since stalled.
Penalties
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.
Virginia
Virginia’s state-administered retirement plan program, RetirePath, is a Roth Individual Retirement Account (IRA) that just launched in June 2023.
Timeline
Eligible employers receive the first registration notification before July 1, 2023. Prior to the statewide launch, a group of Virginia employers participated in a pilot.
Penalties
Employers who do not offer retirement options for their employees face a penalty of $200 per eligible employee per year.
Washington: Voluntary
The city of Seattle enacted their mandatory retirement savings program in 2017, which is overseen by the mayor.
Timeline
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.
Penalties
There are no penalties as the program is voluntary.
A Retirement Plan Built for Your Business
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