Meeting State Retirement Plan Mandates: A Strategic Approach for Employers

Meeting State Retirement Plan Mandates: A Strategic Approach for Employers

by Shannon Oswald
May 23, 2023

More states are requiring businesses to make retirement plans available for employees. The new mandates often apply to businesses of every size, with some states planning to require organizations with even a single eligible employee to offer a retirement savings plan. As this trend grows, what do business leaders need to know to comply with state mandates?

With the right information and a strategic approach, outlined below, businesses of every size can meet state requirements and ensure employees have access to a retirement savings plan, all without breaking the bank or creating an excessive administrative burden.

How Retirement Plans Have Changed

Fifty years ago, the employer-sponsored retirement plan was commonplace. Most employees could expect to receive a pension that would continue for their lifetime and, in many cases, for their spouse’s lifetime. Today those defined-benefit plans are relatively rare, replaced by individual retirement accounts (IRAs), 401(k) accounts and similar retirement savings plans that workers fund themselves, with or without additional contributions by their employer.

This model depends on employees saving consistently throughout their working years. To encourage that financial diligence and ensure a secure retirement for residents, a growing number of states are requiring almost all employers to make retirement benefits available to workers — through a state-sponsored plan or a qualified alternative plan sponsored by the employer. Some states also mandate that unless workers opt out employers automatically enroll their employees in a plan, which boosts participation rates.

About 20% of states currently have retirement mandates on the books and that figure grows each year, with Maine and Virginia implementing legislation in 2023. If your state doesn’t yet have a similar law, there’s a good chance that one is already under discussion.

A robust benefits package that includes a retirement plan can increase job satisfaction and help employers attract and retain highly skilled workers, too. But whether you’re facing a state mandate, seeking a competitive edge in a tight labor market or simply trying to help your team build a sound financial future, the same strategies apply.

First Steps to Comply With State-Mandated Retirement Plans

Reach out to knowledgeable experts to help you get a handle on the basics: What’s required, what’s available and what does it all mean for your business? Your business advisor or CPA is the ideal source for guidance as you think through the issues and compare different plans and providers.

You could also contact a broker to learn about plans available to your business on the private market and explore how they compare to the state’s version. State-sponsored retirement plan administrators or navigators can help with basic questions such as enrollment deadlines, participation requirements and steps to registering your business in the state program.

Plans can be tailored to meet a wide variety of business goals and include different features depending on your needs and preferences. Thoughtfully assess how various plan options will support overarching business objectives and resonate with your unique employee pool:

  • Will the company offer matching contributions?
  • Should your plan include Roth, traditional or both types of contributions?
  • What about hardship withdrawals or loans?
  • How many investment options do employees need?

Work with your advisor to explore all the financial implications and tax ramifications of the plan features you’re considering, as well as their potential to impact hiring and retention in your local job market. Your state-run plan may offer simplicity, but you should also confirm that it offers the features and flexibility you want before signing up.

Note the date your plan has to be in place if state mandates are in play. Businesses that have an existing plan may need to notify state authorities, while those that do not will also need to establish a private plan or register for the state-run plan by the deadline.

Procrastination is not your friend here. Allow ample time to conduct research, evaluate your options, choose a provider and set up your plan. You may want or need to align the beginning dates of your retirement plan’s initial year with your business tax year, if possible. Completing the enrollment process will take time as well, whether it’s the state plan or one you access through the private market.

Key Considerations

With so many possibilities, it can be hard to choose with confidence. The best option depends on your business and your team, so it’s important to examine all the nuances of your situation. Work closely with a qualified advisor to determine the optimal choices for your business.

Your analysis should include key considerations such as how various options will impact your company’s cash flow; overall employee demographics and individual employee needs; and the relative need for and value of your retirement plan as a recruiting and retention tool.

Once you’ve settled on a plan and chosen the features and options you want to include, you’ll need to gain a complete understanding of your company’s ongoing compliance obligations and decide on a management approach. Will you manage your retirement plan internally or outsource the administrative responsibilities? These include:

  • Accounting and record-keeping
  • Annual reporting (Form 5500)
  • Communicating with employees
  • Completing period Cycle 3 plan restatements
  • Coordinating with third-party plan administrators
  • Making timely employee contributions (and employer contributions, if applicable)
  • Withholding employee plan contributions from payroll

In-House Versus Outsourcing Retirement Plan Management

If your business already has a human resources department or full-time HR position, then adding retirement plan administration to the mix may be no big deal. For smaller businesses or those that lack adequate internal resources to take on the additional responsibility, however, outsourcing may be an ideal solution to minimize cost and administrative burden.

Companies that already outsource certain business functions to free up staff for higher-level work may find it most efficient to outsource retirement plan administration as well. Ask your provider about the options for this kind of assistance. Even if you don’t plan to outsource plan administration entirely, some payroll service providers can withhold employee retirement contributions as an add-on service; check with your provider to confirm.

If you rely on multiple service providers for payroll, tax preparation, business advisory, benefits administration or other business functions, implementing a retirement plan also may present an opportunity to re-evaluate your approach and consolidate disparate services under a single provider.

A knowledgeable partner that provides multiple services can add value and efficiency by establishing a strong relationship that grows with your business. Armed with an intimate understanding of your needs and goals, they can help you navigate the ever-expanding regulatory maze, make strategic decisions such as retirement plan selection and adopt a proactive stance to tax planning, among other services.

Strategies for a Successful Retirement Plan

Whether you manage your retirement plan in-house or choose to outsource, it’s a good idea to create a checklist of retirement plan administrative tasks. Clearly define responsibility for each one, designating trustworthy employees to complete and oversee all the necessary steps.

State retirement plan mandates can be alarming, but compliance can be straightforward if you follow these success strategies:

  • Start early and explore all your options.
  • Seek qualified guidance to help you navigate regulations and discover optimal solutions.
  • Select a plan, provider and plan features based on your employees and their needs.
  • Adopt an efficient management approach to minimize administrative burden.
  • Understand your plan management responsibilities, whether internal or outsourced.

Mandated Retirement Plans State by State

A handful of states have signed their retirement programs into law and several other states will soon follow.

California – employers with five or more California employees who do not sponsor a retirement plan must join CalSavers. Beginning December 31, 2025, this requirement will apply to organizations with one or more employees.

Connecticut – By March 31, 2023, all private sector employers with five or more employees will be required to participate in MyCTSavings or offer an employer-sponsored retirement plan that satisfies the requirement.

Illinois – Employers with 16 or more employees that have been in business for two or more years and who do not currently provide a retirement plan must either offer a qualified plan or automatically enroll employees into Secure Choice.

Maryland – Employers with a “work location” in Maryland (to include remote workers in Maryland) that have been in operation for at least two calendar years, have at least one W-2 employee and use an automated payroll system must enroll in MarylandSaves.

Employers meeting the above criteria are required to register with the program, regardless of whether they are exempt from creating a new retirement plan.

Oregon – By March 1, 2023, all employers of any size who do not have an employer-sponsored retirement plan must participate in OregonSaves.

Colorado – eligible Colorado employers are required by law to facilitate Colorado SecureSavings if they don’t offer a retirement plan for their employees.

Registration deadlines:
50 or more employees – March 15, 2023
15 to 49 employees – May 15, 2023
5 to 14 employees – June 30, 2023

Maine – The employer-mandated auto-IRA plan for Maine will be phased in as follows:

25 or more employees – April 1, 2023
15 to 24 employees – October 21, 2023
5 to 14 employees – April 1, 2024

New Jersey – New Jersey enacted the New Jersey Secure Choice Savings Program in 2019, requiring companies with 25 or more employees to either opt into their state-sponsored auto-IRA retirement plan or into another qualifying private plan.

Per the original bill, the program was to become effective on March 28, 2021, with the objective of enrolling everyone by the end of 2021. Due to the COVID pandemic and several other delays, however, the program is not currently operational.

VirginiaRetirePath VA is available to employers that have 25 or more employees and that do not offer a qualified retirement plan to their employees. Eligible employees are limited to individuals who are employed at least 30 hours per week. The program will begin on July 1, 2023.

New York – If you are a business with 10 or more employees and have been in business for more than two years, you will be required to offer your employees a qualified retirement savings plan. See more on the Secure Choice Savings Program. (Compliance deadlines for both New York and New York City have not been published but are expected to be in the fall of 2023.)

New York City – Your business is affected with just five or more employees and two years of operation.

The Bottom Line

A retirement plan is one of the benefits employees appreciate most. By following the strategies shared here, your organization will be able to put all the pieces of your retirement plan in place and you’ll rest easy knowing your business is in compliance with the latest mandates.

Contact our Human Resources Outsourcing experts for assistance with selecting a retirement plan that meets your state’s mandate and your organization’s needs, as well as ways to leverage your workforce to accelerate your business.

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Shannon Oswald - Consulting | Armanino
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