What does the future look like for state-mandated retirement programs? 2024 deadlines and beyond

💡 Key takeaways:

• Many states are rolling out retirement savings programs to help people plan for their financial future.
• While each state program is different, most give employers the option to choose between the state-sponsored plan or a private plan, like a 401(k).
• At least 19 states have active state retirement programs.
• Colorado and Maine have deadlines businesses must meet in the first half of 2024.
• Currently, no federal law requires businesses to offer retirement plans, but it's being discussed on Capitol Hill.

Employers play an important role in helping workers save for retirement. However, in the United States, less than half of the working population has access to a retirement plan through their company. This is partially due to the perception that these benefits are expensive and complex to manage.

In recent years, states have sought to increase retirement plan coverage by creating their own state-run retirement programs—and many states have introduced mandates for employers to either facilitate enrolling employees in the state program or offer a private plan.

Today, 19 states have active state-run retirement programs. Most programs have mandates requiring businesses to enroll employees in the state-run program or provide their own privately run 401(k) plan; a few states have voluntary programs or marketplaces. In the eight states actively auto-enrolling workers into a state-run IRA, more than $1.6 billion has been contributed by employees, and more than 858,000 employee accounts have been funded.

Several states across the country have important deadlines coming up. Here’s what you need to know about state retirement programs and 2024 deadlines.

• Key deadlines in 2024 for state retirement programs

Maine

Program: MERIT (Maine Retirement Investment Trust)

How it works: Maine businesses with five or more employees, have been in business for at least two years, and don’t offer a qualified retirement plan already must register with the program by the deadline.

Upcoming deadlines:

• April 30, 2024: Businesses with 15+ employees
• June 30, 2024: Businesses with 5-14 employees

Need to know: Employers will face state penalties of up to $100 per employee for each individual employee they fail to cover without reasonable cause.

Colorado

Program: Colorado Secure Savings Program

How it works: Colorado businesses who have been in business for at least two years, have five or more employees, and don’t offer a qualified retirement plan for their employees are required by law to facilitate Colorado SecureSavings. Employers already offering a qualified plan are exempt but must certify their exemption.

Upcoming deadline: May 15, 2024, for newly eligible businesses with five or more employees

Need to know: Employers will be subject to a penalty of $100 per employee per year (max $5,000/year) for not complying.

Oregon

Program: OregonSaves

How it works: Oregon businesses with one or more employees who don’t offer a qualified retirement plan must register with the program by the deadline.

Upcoming deadline: July 31, 2024, for newly eligible businesses with one or more employees

Need to know: Employers will be subject to a penalty of $100 per employee per year (max $5,000/year) for not complying.

California

Program: CalSavers

How it works: California businesses with five or more employees and don’t offer a qualified retirement plan already must register with the program by the deadline.

Upcoming deadline: December 31, 2024, for newly eligible businesses with five or more employees

Need to know: Employers will be subject to a penalty of $250 per employee if noncompliance extends 90 days after receiving a notice from the state. An additional $500 per employee penalty will be applied if noncompliance extends to 180 days or more after being notified.

Maryland

Program: MarylandSaves

How it works: Maryland businesses that have been in business for at least two years, use an automated payroll system, have at least one employee, and don’t offer a qualified retirement plan already must register with the program by the deadline. Employers already offering a qualified plan are exempt but must certify their exemption.

Upcoming deadline: December 31, 2024, for newly eligible businesses with one or more employees

New program established in 2024

Washington

Program: Washington Saves Program

How it works: On March 28, 2024, the Washington governor signed a bill establishing the Washington Saves Program, which will require employers who have been in business for two years and do not offer a qualified retirement plan to register with the program.

Upcoming deadline: The program is set to launch by July 1, 2027

Need to know: The program is still under development. A previous version of this program was structured as a voluntary marketplace program but given lackluster sign-ups, legislators are now revising the program as a mandatory law. Employers will face penalties if they don’t comply after the program has launched.

Will all 50 states require retirement coverage?

While only a handful of states have passed legislation regarding retirement plans today, that could change. In recent years, there has been discussion on Capitol Hill about what a federal minimum coverage standard would look like, meaning most companies with at least a few employees in the U.S. would have to offer a plan, no matter the state.

In 2021, the Build Back Better Act contained a blueprint for a federal plan. That plan would have created a national law requiring businesses with six or more employees to set up a retirement savings plan through payroll deduction, with automatic enrollment and auto-escalation features. It didn't make it to the final legislation that passed, but it laid the groundwork for a potential plan in the future. Policymakers are now trying again in an updated bill that would only require business with 10 or more workers to offer a retirement plan either by facilitating enrollment with an auto-IRA (with a state or a private company provider) or a 401(k) plan for their employees.

In the big picture, the federal minimum coverage standard could eliminate the need for companies to navigate retirement plan rules state-by-state as they have today — ultimately making compliance a lot easier. It would also ensure that many more companies could offer access to a retirement benefit, which can help recruit and retain talent. To make it easier for businesses to comply, some additional tax credits would be coupled with it.

Meeting the mandate with a low-cost 401(k) plan

There may be penalties and fines for failure to register or noncompliance with state-mandated retirement programs. While participating in a state-run retirement program may seem like a convenient option, employers can also choose to offer a private retirement plan, like a 401(k).

401(k) plans have several benefits, including higher contribution limits, profit-sharing options, and the ability to match employee contributions. As a result, 401(k) plans can help business owners and their employees save more for retirement. Plus, new tax credits could help your company offset startup costs.¹

If you’re in a state with an upcoming deadline, Guideline can help your company meet the mandate. Here’s how:

• Low-cost, high-impact 401(k) plan: Our plans come with low monthly costs and no transaction fees.² So you won’t have to pay extra for plan setup, plan transfers, or 5500 prep.³
• Simple setup: Get started in 20 minutes. We’ll help you choose a plan that meets the mandate and your business’s goals.
• Automated busywork: Integrations with payroll providers means no need to maintain deductions or manually re-enter payroll data.
  Live support: You and your team get access to live support, guided employee onboarding, a mobile app, and more.

Disclosures:

Guideline has prepared this summary from third-party sources as of May 2, 2024. This information is considered to be reliable at the time of writing, may not necessarily be all-inclusive, is not guaranteed as to accuracy and is subject to change at any time without notice. The information provided is general in nature and is for informational purposes only. It should not be used as a substitute for specific tax, legal and/or financial advice that considers all relevant facts and circumstances. You are advised to consult a qualified financial adviser or tax professional before relying on the information provided. Deadlines, fees, and other program details are subject to change by the state without notice and should be checked prior to making any decisions. If you already offer a qualified employer-sponsored plan, exemptions may be required. Please consult with your states specific exemption information for more details.

¹ This content is for informational purposes only and is not intended to be taken as tax advice. Please consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim.

² See our Form ADV 2A Brochure for more information about Guideline’s fees.

³ Third-party auditor fees will apply to large plans where an audit is required. These fees are not charged by Guideline.