State-Mandated Retirement Programs

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Rödl & Partner Tax Matters Volume 2023-1, published January 4, 2023 

In recent years, many states have started to implement programs requiring employers to enroll employees in a state sponsored retirement program. Employers that already offer a qualified retirement plan are generally exempt, but rules vary by state. This Tax Matters provides an overview of so-called state-mandated retirement programs in general, as well as a summary of plans that have been enacted by various states. At this time, 14 states have enacted a state-mandated retirement program, with varying implementation dates.

 
General Plan Details
 
In some jurisdictions, employers must automatically enroll employees in the program or provide retirement benefits through the private market. Employees may not be required to participate in the program but must generally opt-out by signing a form with the state.

In the states with enacted programs, the employer must set up the payroll deductions and remittances but is typically not permitted to make contributions. One exception is California which currently requires the employer to contribute three percent (3%) of employee wages to the state program.

State-mandated programs are defined contribution plans and not benefit programs, so the employer generally does not have the same level of fiduciary responsibility as with a private plan. State-mandated plans may also cost less to administer than private plans, but often at the cost of lost flexibility.
 
Threshold Requirements

Most states require employer participation when there are five or more employees. Rather than determining an employer's obligation to participate based on the number of employees, Connecticut requires participation if five employees were paid at least $5,000 in taxable wages in the prior year. Thus, we expect that many of our clients will be required to join the state programs based on these low thresholds.

Major Exemptions

As mentioned above, all the states with active programs, as well as the states that have passed legislation but have not yet implemented their programs, have carve-outs for employers that are already offering a qualified retirement plan. A qualified retirement plan is generally defined as an employer sponsored plan such as 401(k), 403(b), SEP, SIMPLE, or other similar plans.

In some states such as Washington and New Mexico, participation is completely voluntary for the employer and employee.

States with Active Programs

California: CalSavers
Connecticut: MyCTSavings
Illinois: Illinois Secure Choice
Maryland: MarylandSaves
Massachusetts: Massachusetts Defined Contribution CORE Plan
Oregon: OregonSaves
Washington: Washington Small Business Retirement Marketplace

States with Scheduled Implementation

Colorado: The Colorado Secure Savings Program (2023)
Maine: Maine Retirement Savings Program (April 2023)
New Jersey: New Jersey Secure Choice Savings Plan (to be determined)
New Mexico: New Mexico Work and Save Act (July 1, 2024)
Vermont: Green Mountain Secure Retirement Plan (to be determined)
Virginia: Virginia Saves (July 1, 2023)

States/Jurisdictions with no Scheduled Implementation
 
New York: New York Secure Choice Savings Plan
New York City: Retirement Security for All Act

This is intended to be a brief overview of state-mandated retirement programs which you can use to jumpstart your planning. If you have any questions or would like to discuss your specific situation further, please contact your Rödl & Partner representative or your payroll provider.

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