In 2023, three states (Nevada, Minnesota, and Vermont) passed legislation to implement a state-run retirement program. The tally currently stands at 17 states and two cities, that have established some form of state retirement program. Generally, these programs offer Roth IRAs (some also offer a traditional IRA option) to workers whose employers do not offer a retirement plan.
Increases in state benefit costs projected.
States are looking for solutions to possible increases in state benefit costs as the American population ages with low retirement funds. A recent report by Econsult Solutions, Inc. and Pew, discussed the impact of insufficient retirement savings on government expenditures on benefit programs.
Because benefit programs generally are based on senior income levels, except for Social Security and Medicaid, the report projects that program expenditures will continue to grow as the population ages and medical costs continue to rise. Further, the report notes that by 2040, there will be 54 elderly households for every 100 work age household, creating “significant fiscal pressure.” This trend will not end, according to the report, even after the initial wave of baby boomer retirements.
The report projects that from 2021 to 2040 program costs will be over $135 billion in California due to insufficient retirement savings, while over $75 billion for both New York and Texas. Despite these projections, workers continue to not have access to employer-sponsored retirement plans.
Workers lack access to employer-sponsored retirement plans.
According to AARP research, 48% of employees work for an employer that does not offer a retirement plan. Even those that do, the employee may lack access to the plan, especially in the case of smaller employers. For example, 78% of workers of employers with fewer than 10 employees and 65% of employers with 10 to 24 employees lack access to a plan. Even in the case of large employers, those with 1,000 workers, 33% of workers do not have access to employer plans.
Some reasons that employers have provided for not offering a plan include prohibitive costs (48%), administrative burdens (22%), and lack of knowledge as to how to obtain a plan (21%). With this lack of access, it’s not surprising that nine out of 10 employees support a state-facilitated retirement program.
States with retirement programs.
While 17 states and two cities (New York City and Seattle) have laws on the books to establish these programs, not all of the programs have been fully implemented. In some cases, some programs do not have a target date scheduled for implementation. The legislation introducing these programs go by various names though the most common are “Secure Choice” or “Work and Save.” Massachusetts and Washington have voluntary participation.
In general, these state-run retirements plans require employers to automatically enroll their workers into the program if the employer does not offer a plan. A phase-in employer registration approach is used by many states based on the employer’s size. For example, in Illinois, required registration with its program is due November 1, 2023, for employers with five to 15 employees. The state will set a default contribution rate and some states call for an annual increase to contribution rate until a maximum rate is achieved. Employees are given the choice to opt out of the program.
Currently, the following states have laws establishing a program with some states in full implementation, others with scheduled implementation, and some have been silent as to when implementation may occur:
- California: CalSavers. Final phase-in registration for employers with 4 or fewer employees by December 31, 2025. See Payroll Guide ¶17,112.
- Colorado: SecureSavings. Employer registration deadlines are completed for employers of all sizes. See Payroll Guide ¶17,114.
- Connecticut: MyCTSavings. Employer registration deadlines are completed for employers of all sizes. There is an August 31, 2023 deadline for newly eligible businesses. See Payroll Guide ¶17,116.
- Delaware: DE EARNS. Program implementation scheduled by January 1, 2025. See Payroll Guide ¶17,118.
- Hawaii: Hawaii Retirement Savings Program. Program details to be determined by a board. See Payroll Guide ¶17,126.
- Illinois: Secure Choice. Final phase-in registration for employers with 5 to 15 employees by November 1, 2023. See Payroll Guide ¶17,130.
- Massachusetts: CORE Plan. Voluntary 401(k) multi-employer program for small nonprofit employers. Fully implemented. See Payroll Guide ¶17,146.
- Maryland: MarylandSaves. Fully implemented. See Payroll Guide ¶17,144.
- Maine. Program implementation scheduled no later than December 31, 2024. See Payroll Guide ¶17,142.
- Minnesota: Minnesota Secure Choice Retirement program. Program implementation scheduled no later than January 1, 2025. See Payroll Guide ¶17,150.
- New Jersey: Secure Choice. Program has not yet been implemented. See Payroll Guide ¶17,164.
- New Mexico: Work and Save. Implementation has been delayed until July 1, 2024. See Payroll Guide ¶17,166.
- Nevada. Contributions toward the program must begin by July 1, 2025. See Payroll Guide ¶17,160.
- New York. Program has not yet been implemented. See Payroll Guide ¶17,168.
- Oregon: Oregon Saves. Final phase-in registration for employers with 1 to 2 employees and employers that use a PEO by July 31, 2023. See Payroll Guide ¶17,178.
- Virginia: RetirePath. Registration began July 1, 2023. See Payroll Guide ¶17,196.
- Vermont: VT SAVES. Phased-in registration begins July 1, 2025, for employers with 25 or more employees. See Payroll Guide ¶17,194.
- Washington: Retirement Marketplace. The states a retirement marketplace where employers may voluntarily participate in a menu of plans. See Payroll Guide ¶17,198.
Likely, we will continue to see legislation proposed to establish state-run retirement programs to address the growing concern of the costs of benefit programs. In 2023 alone, ten states proposed legislation to establish state-run IRA programs or introduced bills to study the feasibility of such plans.
For employers operating in states with retirement programs, employers that don’t currently offer a retirement plan must comply with automatic enrollment requirements. Employer compliance may include registering with the state’s program by a specified date, filing for an exemption, distributing informational materials, collecting required forms for the program, and remitting the contributions to the state. As the trend for state retirement plans grows, compliance may become challenging for multi-state employers.
But that will be no excuse for non-compliance. States are serious about employer responsibilities. Many of the laws include penalty provisions for failure to comply with program requirements or include provisions to set penalties at a later date.
There may be a federal solution in sight. On approach would be require employers to provide retirement plans. The Insured Retirement Institute (IRI), a trade association for the insured retirement industry, is advocating a federal law that would require employers to offer retirement programs in many cases. In a letter to President Biden, the IRI voiced its support for H.R. 5376, the Automatic Retirement Plan Act. This bill, introduced in the prior legislative session and in previous sessions dating back to 2017, would require most employers to maintain an automatic retirement savings plan, excepting only the smallest employers.
Another possible federal solution would be the establishment of a national plan. Introduced in December 2022 of the prior legislative session was H.R. 9462, the Retirement Savings for American Act of 2022 which sought to create a national retirement program. The bill was bipartisan, demonstrating the concern from both sides of the aisle for a solution to this looming financial issue. It is possible that the bill may be reintroduced in the near future.
There is a Payroll Chart on the topic: Payroll Chart > Wage Payment > State Run Retirement Programs. Also see the state Wage Payment sections for further information.
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