Are Retirement Savings Plans Required? The Answer Might Surprise You

Many companies have long included a retirement savings plan in their employee benefits packages as a voluntary benefit. Over the last few years, offering this type of benefit has started to become mandatory in some places. States like California, Colorado, Connecticut, Illinois, and Oregon are among those leading the way in requiring employers to provide employees with a way to save for retirement. This is done via a qualified private plan or a state-specific plan.

As of early 2022, many states have established their own retirement plans. Some of these states already require employers who don’t offer another retirement plan to participate, while participation is still optional in a few. Many other states (like New York )have recently passed legislation that will be implemented in the future, and still more states are only just considering such laws.

There is even discussion in D.C. of federal legislation that could require most employers nationwide to offer this type of benefit, potentially as early as 2023. It’s clear that the trend of state-specific retirement savings mandates is expanding rapidly and may actually reach the federal level.

Examples of States With Mandatory Retirement Savings

Employers in some states are already required to offer retirement savings plans, with others soon to experience similar mandates. Specific requirements and implementation timelines vary by state, and new laws are likely to be passed on an ongoing basis.

Businesses in states that have already passed retirement savings laws need to make sure they’re in compliance. Employers need to monitor legislative activity in this area as requirements begin to develop across the states. Consider a few key states:

CalSavers in California

In California, employers must either offer a retirement plan to employees or participate in the state’s CalSavers program. The CalSavers program involves processing employee contributions to an individual retirement account (IRA) via payroll deductions and meeting administrative and recordkeeping requirements.

• California employers with 50 or more employees should already be participating.

• California employers with five to 49 employees must comply by June 30, 2022.

Secure Choice in Illinois

In Illinois, employers with five or more employees who do not otherwise offer a retirement savings plan must register for the Illinois Secure Choice program. Through the program, employers must allow employees to contribute to a Roth IRA via payroll contributions and meet recordkeeping requirements.

• Illinois employers with 25 or more employees should already be in compliance.

• Employers in the state with 16-24 employees must comply by November 1, 2022.

• Those with 5-15 employees have until November 1, 2023 to comply.

Secure Savings in Colorado

Colorado Secure Savings, which helps provide retirement accounts for people who don’t have a retirement plan through their employer, is slated to go into effect in 2023. The law will apply to Colorado employers with five or more employees when it becomes effective. Compliance deadlines will be announced closer to the effective date.

Employer Implications

What does this mean for employers? Companies are beginning to realize that offering a retirement savings plan to employees is no longer optional in some places, and may become mandatory everywhere at some point. Many employers already offer retirement savings opportunities to employees without a mandate — doing so puts you ahead of the trend while also making a valuable benefit available to your employees.

If your company does not currently offer a plan, this may be a good time to implement one, even if you aren’t in an area that currently has a mandate in place. After all, companies and employees alike enjoy tax benefits from qualified retirement savings plans, and this type of benefit can help employers attract and retain talent.

A private plan may provide your employees with more options than would be available to them in a state sponsored retirement program. Whether you offer a private plan or participate in a state plan, your company will have to take care of employee enrollment and/or opt-out documentation, payroll deductions, and meeting recordkeeping and notification requirements.

Working with a PEO like Justworks can provide even small businesses with affordable access to a retirement savings plan for their employees while simplifying the administration of this type of program.

Stay Ahead of the Trend

As more and more states pass laws requiring employers to offer retirement savings plans, more and more employers will be affected — not to mention the potential for universal impact if a federal mandate comes to pass.

The best way to stay ahead of this latest trend may be to proactively move forward with offering a retirement savings plan to your employees. Not only will this keep you from having to register in multiple state-specific programs for every location where you have employees, but your company also won’t have to scramble to comply as more and more state-specific requirements are implemented. for retirement. This is done via a qualified private plan or a state-specific plan.

As of early 2022, many states have established their own retirement plans. Some of these states already require employers who don’t offer another retirement plan to participate, while participation is still optional in a few. Many other states (like New York) have recently passed legislation that will be implemented in the future, and still more states are only just considering such laws.

There is even discussion in D.C. of federal legislation that could require most employers nationwide to offer this type of benefit, potentially as early as 2023. It’s clear that the trend of state-specific retirement savings mandates is expanding rapidly and may actually reach the federal level.

Examples of States With Mandatory Retirement Savings

Employers in some states are already required to offer retirement savings plans, with others soon to experience similar mandates. Specific requirements and implementation timelines vary by state, and new laws are likely to be passed on an ongoing basis.

Businesses in states that have already passed retirement savings laws need to make sure they’re in compliance. Employers need to monitor legislative activity in this area as requirements begin to develop across the states. Consider a few key states:

CalSavers in California

In California, employers must either offer a retirement plan to employees or participate in the state’s CalSavers program. The CalSavers program involves processing employee contributions to an individual retirement account (IRA) via payroll deductions and meeting administrative and recordkeeping requirements.

• California employers with 50 or more employees should already be participating.

• California employers with five to 49 employees must comply by June 30, 2022.

Secure Choice in Illinois

In Illinois, employers with five or more employees who do not otherwise offer a retirement savings plan must register for the Illinois Secure Choice program. Through the program, employers must allow employees to contribute to a Roth IRA via payroll contributions and meet recordkeeping requirements.

• Illinois employers with 25 or more employees should already be in compliance.

• Employers in the state with 16-24 employees must comply by November 1, 2022.

• Those with 5-15 employees have until November 1, 2023 to comply.

Secure Savings in Colorado

Colorado Secure Savings, which helps provide retirement accounts for people who don’t have a retirement plan through their employer, is slated to go into effect in 2023. The law will apply to Colorado employers with five or more employees when it becomes effective. Compliance deadlines will be announced closer to the effective date.

Employer Implications

What does this mean for employers? Companies are beginning to realize that offering a retirement savings plan to employees is no longer optional in some places, and may become mandatory everywhere at some point. Many employers already offer retirement savings opportunities to employees without a mandate — doing so puts you ahead of the trend while also making a valuable benefit available to your employees.

If your company does not currently offer a plan, this may be a good time to implement one, even if you aren’t in an area that currently has a mandate in place. After all, companies and employees alike enjoy tax benefits from qualified retirement savings plans, and this type of benefit can help employers attract and retain talent.

A private plan may provide your employees with more options than would be available to them in a state sponsored retirement program. Whether you offer a private plan or participate in a state plan, your company will have to take care of employee enrollment and/or opt-out documentation, payroll deductions, and meeting recordkeeping and notification requirements.

Working with a PEO like Justworks can provide even small businesses with affordable access to a retirement savings plan for their employees while simplifying the administration of this type of program.

Stay Ahead of the Trend

As more and more states pass laws requiring employers to offer retirement savings plans, more and more employers will be affected — not to mention the potential for universal impact if a federal mandate comes to pass.

The best way to stay ahead of this latest trend may be to proactively move forward with offering a retirement savings plan to your employees. Not only will this keep you from having to register in multiple state-specific programs for every location where you have employees, but your company also won’t have to scramble to comply as more and more state-specific requirements are implemented.