Hawaii is the latest state to create a state-administered retirement plan to address the retirement savings crisis. Many employees do not have proper access to retirement savings accounts. These retirement plan programs seek to change just that. Here are the details.
KEY TAKEAWAYS
- Hawaii Saves retirement program will be an Auto-IRA
- It is expected to be up and running by July 1st, 2024
- Enrollment is mandatory for employers not already enrolled in a qualifying plan.
- Employees must be automatically enrolled but can choose to opt-out.
Plan Details
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.
Eligibility Requirements
Employees must be:
- A resident of the state
- At least 18 years old
- Employed and receive wages from an employer
Employers must be:
- In business for more than two years
This does not apply to employers who are a part of a state or federal government agency.
Contributions
The default contribution is five percent of each employee's salary or wages. The employee may choose to contribute higher or lower if they desire. Of course, it may not surpass the IRA contribution limits for that year.
The board overseeing the plan may choose to automatically increase contributions annually by one percent until enrolled employees have reached an eight percent annual contribution rate.
Qualified Plans
Employers may also choose from these qualified plans:
- 401(a)
- 401(k)
- 403(a)
- 401(b)
- 408(k) SEP
- 408(p)
Each state retirement program has its respective list of qualified plans. If you are not satisfied with the offerings of the Hawaii Saves program, it may be helpful to explore what each plan type above has to offer.
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.
If you are struggling to find a retirement plan that fits your business, don't hesitate to contact us. We would love to help.
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