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State Mandated Retirement Plans
Complying with state-mandated retirement programs can help you prevent costly penalties and attract and retain talent. Learn more.
State-mandated retirement plans
Retirement services & planning
State-mandated retirement plans
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.
What are state-mandated retirement plans?
When states require employers to provide their employees with retirement savings opportunities, it’s known as a state-mandated retirement. Businesses generally have two ways to comply with these laws – enroll their employees into a state-sponsored retirement program or sponsor a plan of their own through the private market, such as those offered by ADP.
Why are states mandating these retirement plans?
Some states have begun mandating retirement plans as a way to address the retirement savings gap in this country. Their response is based on research that shows:
The average working household has virtually no retirement savings1
Employees are more likely to save when they have access to a 401(k) or similar plan by their employer2
Only four in 10 businesses with less than 100 employees offer retirement benefits3
What type of retirement plans are these?
State-sponsored retirement plans are commonly Roth individual retirement accounts (IRA). With this type of savings, employee contributions are deducted from post-tax income, which means their money is generally tax free at the time of withdrawal. In comparison, a traditional IRA is funded with pretax payroll deductions, thereby lowering the employee’s taxable income. When the individual draws from the account, however, the money is subject to taxes.
Who are these retirement plans for?
State-mandated retirement plans are designed for low to moderate income wage earners who work for small and midsized businesses in the public sector. These plans are entirely separate from the state-funded retirement programs for public employees.
What are the requirements for employers and employees?
The requirements for state-mandated retirement benefits largely depend on individual jurisdictions, the size of the organization and how long it has been in business. Generally, employers must enroll their employees in the state-sponsored program if they don’t offer another retirement plan and perform the detailed administrative and reporting work necessary under state law. These tasks can be daunting, which is why many employers choose one of ADP’s easy-to-manage plans instead.
Employee requirements also may vary. In states that sponsor Roth IRAs, participants must not earn more than the IRS maximum to be eligible for such plans.
How do state-mandated retirement plans work?
The inner workings of mandatory retirement plans depend on the state, but there are some commonalities. Typically, plans are administered through payroll deductions and employees are automatically enrolled, but can opt out or change how much they contribute. Employers themselves are usually prohibited from contributing to the plans.
There are, however, some exceptions to these general guidelines. For instance, Massachusetts permits Safe Harbor matching contributions by employers. Business owners should check with local authorities for specific information on how their state-sponsored retirement plan works.
Which states have mandatory retirement plans?
More than 30 states have considered enacting state-mandated retirement plan legislation. Of them, 13 have actually signed such programs into law. These states are highlighted on the map below:
Retirement legislation state by state
Active state-sponsored retirement plansStateRetirement Legislation
California CalSavers Connecticut MyCTSavings Illinois
Illinois Secure Choice
Massachusetts Defined Contribution CORE Plan
Oregon OregonSaves Washington
Washington Small Business Retirement Marketplace
Legislation passed, implementation scheduledStateRetirement LegislationTarget Date
Colorado Secure Savings Program
End of 2021-2022 Maine
Maine Retirement Savings Program
July 2023 Maryland
Maryland Small Business Retirement Savings Program
Mid 2022 New Jersey
New Jersey Secure Choice Savings Plan
March 2022 New Mexico
New Mexico Work and Save Act
January 2022 Virginia Virginia Saves July 2023 Vermont
Green Mountain Secure Retirement Plan
Legislation passed, implementation not scheduledStateRetirement Legislation
New York Secure Choice Savings Plan
New York City
Retirement Security for All Act
State-mandated retirement legislation continues to evolve across the country. Employers should check with their local representatives for the latest updates.
My Employer Doesn't Offer a 401(k). Should I Care?
Find out what to do if your employer doesn't offer a 401(k) retirement savings plan, including alternative investment options.
RETIREMENT PLANNING 401(K)
My Employer Doesn't Offer a 401(k). Should I Care?
My Employer Doesn't Offer a 401(k). Should I Care? Yes, you should care. You have a few options.
By SEAN ROSS Updated December 10, 2021
Reviewed by THOMAS J. CATALANO
Fact checked by YARILET PEREZ
Many Americans don't have access to 401(k) plans, a lot of which are self-employed or younger workers. Meanwhile, others work for smaller companies without established benefit packages. If your company doesn’t offer a 401(k), you still have options, such as opening an individual retirement account (IRA) at another financial institution.
If your company doesn't offer a 401(k), you still can save for the future.
Individual retirement accounts (traditional and Roth IRAs) let you put away up to $6,000 a year for retirement purposes.1
Your options may include encouraging the company bosses to adopt a retirement plan.
The Role of a 401(k)
Like many defined-contribution retirement plans, the 401(k) plan takes its name from a provision in the Internal Revenue Code (IRC). Section 401(k) of the IRC was enacted in 1978 to give a tax break to working civilians who deferred income for retirement.2
The government never envisioned section 401(k) transforming the way employers and employees handled retirement investments. Those innovations came two years later when consultant Ted Benna created the first true 401(k) plan with the Johnson Companies.3
Benna's plan has been copied and modified ever since. As of June 30, 2021 (the most recent data available), 401(k) plans held $7.3 trillion in assets making up nearly 20% of the $37.2 trillion in U.S. retirement assets of any type.4
Today, employees can choose to defer income through automatic deductions from paychecks into employer-sponsored 401(k) plans. Deferred money is left untaxed and can be directed to any investments listed in the plan, most of which are mutual funds.5
Deferred funds must be left in defined-contribution plans until an employee reaches age 59½ unless special provisions apply; if not, the funds are subject to early withdrawal penalties.6
Despite the myriad restrictions—and the fact that most 401(k) plans offer somewhat limited investment choices—many workers heavily rely on their 401(k) investments for retirement. Most private American workers simply expect their employers to offer plans, and many retirement planning guides seem to take it for granted that 401(k)s will play leading roles for workers.
The reality is quite different: Only 60% of American workers have access to employer-sponsored defined contribution plans, according to a March 2019 study by the U.S. Bureau of Labor Statistics (BLS), and only 43% were active participants.7
Those numbers are actually a little deceiving; access rates climb to 73% and participation rates jump to 57% for full-time workers. The figures are even higher when you exclude unionized labor, where workers have other collectively bargained benefits available.8 Still, plenty of Americans don't have access to a 401(k) plan and need to find other ways to save for retirement.
Why Your Employer Doesn't Offer a 401(k)
The most common reason an employer doesn't offer a 401(k) is that most of their jobs are entry-level or part-time. The average worker in these positions is either very young or living paycheck to paycheck, so saving for retirement is difficult; most would pick getting more money upfront instead of a retirement plan anyway.
There are other reasons why your employer might not offer a plan. An employer might not have the experience or time to create an individually designed plan or have a go-to financial or trust institution. In these cases, plenty of employers make the decision not to offer benefits rather than spending time and money chasing a good sponsor.
U.S. Bureau of Labor Statistics Report
In a 2018 article titled "The benefits of working for a small business," the U.S. Bureau of Labor Statistics (BLS) reported that defined contribution plans, such as 401(k)-style plans, were available to 47% of workers in small businesses while access to defined benefit plans, like pension plans, was lower at 7%. (The BLS defines small businesses as those with fewer than 50 workers.) While small businesses offer a wide variety of benefits, retirement plan options generally aren't one of them.9
Some companies used to offer 401(k) plans but decided to drop them. This sometimes happens because a company is losing money and scrambling to reduce expenses. Other times, it's because new management came in and is looking for a different option, or because workers aren't participating in the plan and it's no longer sensible to keep it open.
Note that for 2021, the 401(k) contribution limit is $19,500 (rising to $20,500 in 2022), with a $6,500 catch-up contribution for those 50 or older.1011
Alternatives to a 401(k)
The most obvious replacement for a 401(k) is an individual retirement account (IRA). Since an IRA isn't attached to an employer and can be opened by just about anyone, it's probably a good idea for every worker—with or without access to an employer plan—to contribute to an IRA (or, if possible, a Roth IRA).
However, there are limitations to an IRA. It's very unlikely a worker can completely replace a 401(k) with only an IRA. Most glaring is the IRA's contribution limit, which is a relatively paltry $6,000 per year versus the 401(k) limit of $19,500 in 2021 (and $20,500 in 2021).1011
Employer mandate for offering a retirement plan faces headwinds
An auto-retirement plan proposal could be a "game changer," sources say, but it only has the backing of one political party in Washington.
September 17, 2021 08:00 AM
Employer mandate for offering a retirement plan faces headwinds
BRIAN CROCE TWEET SHARE MORE REPRINTS
A proposal to require employers that don't offer retirement plans to automatically enroll employees in individual retirement accounts or 401(k)-type plans could be a "game changer" for the nation's retirement landscape, sources said.
But while retirement security is typically one of the few bipartisan issues left in Washington, the automatic retirement plan proposal only has the backing of Democrats, which could complicate future negotiations on retirement security legislation, like a SECURE Act 2.0 package.
The House Ways and Means Committee in a 22-20 vote advanced the automatic retirement plan proposal on Sept. 9. The vote was part of a markup where the committee considered a series of legislative proposals under a budget reconciliation process. The markup was part of Democratic efforts to pass a $3.5 trillion social spending plan aimed at addressing climate change; expanding Medicare, paid family and medical leave and child-care options; and establishing universal prekindergarten, among other items.
If signed into law, the measure — which would take effect Jan. 1, 2023 — would require employers to offer a 401(k) or IRA, with exceptions for governments, churches and companies with five or fewer employees or less than two years in business. It does not cover employees under 21, and any employee can opt out.
House committee advances automatic retirement plan proposal
Qualified employees would be automatically enrolled in the plans — with target-date funds as the default option — at a 6% contribution rate that would be increased — unless the participants opts out — by 1 percentage point each year until it reaches 10%. For IRAs, the Internal Revenue Service contribution limit is $6,000 for most people and $7,000 for people over 50.
Employer contributions would not be required, but failure to offer a plan would incur an excise tax of $10 a day per employee. The smallest employers would receive tax incentives to offset startup costs.
The proposal would also require plans to offer participants with more than $200,000 in their accounts an option to take a distribution of at least 50% of their vested account balance in the form of a protected lifetime income solution.
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Also included is a provision to make the saver's credit — a federal tax credit designed to incentivize lower-income working Americans to save for retirement — refundable so that people without any income tax liability are eligible to receive the benefit in the form of a contribution to their retirement account.
Melissa Kahn, Washington-based managing director of retirement policy for State Street Global Advisors' defined contribution team, called the proposal a "game changer" because it would "dramatically" increase the number of people with access to a workplace retirement plan. Retirement experts often talk about getting people to save more for retirement and the best ways to manage retirement assets, she said. "But if you don't have access to a plan, you never get to any of those other issues, so that's why we think this is such a critical proposal," Ms. Kahn said.
Two-thirds of private-sector workers had access to employer-provided retirement plans in March 2020, including 52% with access to a defined contribution plan, according to data from the Bureau of Labor Statistics published in March. But with respect to workers whose wages were among the lowest 25%, the percentage dropped to 42% with access to a plan.
Too many employees, particularly those who work for small businesses, are still not covered by a plan, said Wayne Chopus, president and CEO of the Washington-based Insured Retirement Institute, which represents major insurers, money managers, broker-dealers and financial professionals, in a statement. "This puts too many workers in jeopardy of not saving enough for retirement, which can last 20 or 30 years or longer," he said. "We need to take additional steps to address the inequitable access to an effective means to accumulate retirement savings, and this legislation is a common-sense step to do just that."
Chairman of the House Ways and Means Committee Rep. Richard Neal (D-MA).
63 million new savers
The auto-enrollment provision that advanced Sept. 9 is based on a bill — the Automatic Retirement Plan Act — introduced in December 2017 by Ways and Means Committee Chairman Richard Neal, D-Mass.
Establishing automatic IRAs and enhancing the saver's credit would dramatically expand retirement savings, Mr. Neal said during the Sept. 9 markup. He cited data from the American Retirement Association, which found that implementing such proposals could add up to $7.3 trillion in additional retirement savings over a 10-year period and create more than 63 million new retirement savers.