Making Cents of It All
Oh how dimes have changed! With the decline of pensions, crazy inflation, and increased rent and housing costs, the “retirement crisis” in America continues. Makes cents, right? This isn’t news to any of us, and it definitely isn’t to the government. In fact, state and federal governments are trying to combat retirement plan challenges. New legislation, like the SECURE Act and SECURE 2.0, put provisions in place to incentivize retirement plan establishment and savings. Not coin-cidentally, state governments are also trying to get a-head of the situation and are stepping in with their own proposed solution: mandatory retirement programs. We’ll tail you all about these programs, upcoming deadlines, and the options employers have below.
Check it out: State-sponsored retirement programs overview
Many states have developed, or are in the process of developing, mandatory retirement programs. This means employers must join the state’s program if they don’t already offer a plan.
While each state has different plan details, money programs have these similarities:
- Employee contributes to a Roth IRA
- Employee contributions are automatic (employee can opt out)
- Investment options are chosen by the state
- Employer contributions are not allowed
Employers have options if they don’t want to register for these programs, rich we’ll discuss soon. But first, let’s take a look at some of the upcoming deadlines.
URGENT: Doughn’t miss these upcoming retirement plan deadlines
These state-sponsored programs continue to pop up across the country, so it’s no coin-cidence that more and more deadlines are, as well. To avoid penny-alties, employers in these states need to know these dates and take action.
Illinois state law requires that all employers with over five employees who have been in business for at least two years and do not offer a qualified retirement plan option must automatically enroll employees in the state’s program: Illinois Secure Choice.
- Employers with more than 15 employees: Registration deadline has passed.
- Employers with 5-15 employees: Registration deadline is November 1, 2023.
All Oregon employers are required to register for OregonSaves if they don’t offer a retirement plan for their employees.
- Employers with 3 or more employees: Registration deadline has passed.
- Employers with 1-2 employees: Registration deadline is July 31, 2023.
- Employers using a Professional Employer Organization (PEO) or Leasing Agency: Registration deadline is July 31, 2023.
The California program, called CalSavers, requires that all employers with employees in enroll if they do not offer a retirement plan that will exempt their business.
- Employers with 5 or more employees: Registration deadline has passed.
- Employers with 1-4 employees: Registration deadline is December 31, 2025. (Businesses that do not employ anyone outside of the owners are exempt from this.)
All Colorado employers are required by law to facilitate Colorado SecureSavings if they don’t offer a retirement plan for their employees.
- Employers with 50 or more employees: Registration deadline has passed.
- Employers with 15-49 employees: Registration deadline is May 15, 2023.
- Employers with 5-14 employees: Registration deadline is June 30, 2023.
But wait, there’s more (states and programs!)*
RetirePath, Viriginia’s mandatory program, is launching this year (2023). Eligible for-profit and non-profit businesses are required to facilitate RetirePath if they don’t offer a qualified, employer-sponsored retirement plan. Employers can review the state website, linked above, for more information as it becomes available.
Other states, including Maine, New Jersey, and New York, are piggybanking on the trend and will launch their own mandatory programs, with implementation deadlines under development.
Connecticut and Maryland have also implemented mandatory state-sponsored retirement programs. While their deadlines have passed, employers who have registered in these programs can still choose better options for their retirement plans.
*Please note this information is not comprehensive. Review your state’s specific guidelines for more information and updates.
Dollar at us for better options and take action now!
While these state-sponsored programs can help Americans save for retirement, they might not be the best option for employers. Why? Because sponsoring a qualified retirement plan can provide the following benefits that these state-sponsored plans cannot.
- Flexibility to meet unique goals. Customized plan design allows employers to save more, the potential to avoid stressful compliance testing, and reward key employees. By sponsoring their own plan, employers can choose the best option for them, control investments, and make changes as they see fit.
- Greater tax benefits. Most state programs don’t allow employer contributions, meaning employers miss out on the tax deductions possible by contributing to employees’ retirement funds. Additionally, IRA income limitations prohibit many employers and key employees from contributing at all. That’s non-cents! A qualified retirement plan allows employers to contribute to both, gaining the tax benefits of both, as well.
- Employee retention and recruiting. According to a Glassdoor survey, 4 out of 5 employees would prefer new or added benefits over a raise. By providing employer contributions (not allowed in state-sponsored programs), employers can create a valuable incentive for employees and potential new talent.
- Bill-ding more savings. Retirement plan contribution limits set by the IRS allow for significantly more savings potential with qualified retirement plans. These options are only available when established by the employer, not through state-sponsored plan options.
So…what now? Purse-ue the best plan for your future!
Employers in states whose deadlines have already passed can still take advantage of the perks of sponsoring their own plan! If they’ve registered for the state’s program, they don’t have to stay in it.
Employers in states with upcoming deadlines must take action soon: either registering for the state’s program or establishing their own plan. To bank on the benefits above, employers should choose the latter option, and we can help!
At EGPS, we specialize in finding the perfect retirement plan solution for our clients. We’re available and ready to guide employers to the best, cent-sational option that fits their organization’s needs.