What You Need to Know About State-Mandated Retirement Programs

04/26/2022 Written by: Lisa Vilardi, AIF®

What began as a grassroots effort to make retirement savings plans more accessible has resulted in some states implementing state-mandatory retirement programs. Distinct from state retirement plans established for public employees, these programs require private employers to provide retirement benefits if they don’t currently.

While the law varies for each state that has adopted a state-mandated retirement program, there are some commonalities:

  • Employers must participate
  • Employees are auto-enrolled
  • Plans are chosen by the state and are typically administered through payroll deduction
  • IRA and open MEPs (multiple employer plans) are the most common

While more than 30 states have considered enacting state-mandated retirement plan legislation, 14 states currently have active or scheduled programs. Three states – California, Illinois, and Oregon have active mandatory programs:

California: Calsavers

  • Employers with five or more employees are required to participate
  • A portable plan offering Traditional and Roth IRAs
  • Employees are automatically enrolled in the plan
  • Program oversight is from a public board chaired by the State Treasurer
  • Multiple target-date funds, as well as ESG, core bond, and global equity funds, make up the investment options

Illinois: Secure Choice

  • Employers with five or more employees that have been in operation for at least two years are required to participate
  • Employees are automatically enrolled in the plan at a 5% contribution rate
  • Employees have the option to opt out of the plan
  • The program is set up as a Roth IRA

Oregon: OregonSaves

  • All employers that do not offer a retirement plan and self-employed individuals are required to participate
  • The program is set up as a portable Roth IRA
  • Employees are automatically enrolled in the plan at a 5% contribution rate
  • Employers have 60 days to enroll new employees

Colorado, Connecticut, Maine, Maryland, New Jersey, New York State, New York City, and Virginia have passed legislation to establish mandatory retirement programs. Most of these programs require employers with a minimum number of employees to participate, typically from 5 to 25.

Massachusetts, New Mexico, Vermont, and Washington have enacted voluntary retirement savings programs. Participation requirements and plan design vary among these active voluntary programs.

Employers that qualify for state-mandated programs could face penalties for non-compliance. Those that offer a retirement plan that is qualified under the Internal Revenue Code may need to register for an exemption in their state’s program.

Across the country, states continue to examine the availability and adequacy of retirement savings. At both state and federal levels, bills seeking to establish retirement savings programs continue to be introduced. Many of these efforts include provisions for auto-enrollment, expanding eligibility, and business participation.

Employees are the heart of any company. Quality benefits that include a retirement savings plan are essential for recruiting and retaining the very people that keep your business running. The financial professionals at AssuredPartners Investment Advisors can guide you through state-mandated retirement plans and help you explore other options that may be available. 

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