Which States Have Mandatory Retirement Plans?

Which States Have Mandatory Retirement Plans?

Introduction

As retirement security becomes a growing concern in the U.S., many states have implemented mandatory retirement plans for private-sector workers. These state-sponsored programs aim to help employees save for retirement, especially those who lack access to employer-sponsored plans like 401(k)s.

This article explores which states have mandatory retirement plans, how they work, and what employers and employees need to know.

1. What Are Mandatory Retirement Plans?

Mandatory retirement plans are state-run programs that require certain employers to offer retirement savings options to employees. These programs typically function as automatic enrollment payroll deduction IRAs (Auto-IRAs) and are designed to:

• Encourage workers to save for retirement.
• Reduce dependence on Social Security.
• Provide retirement options for small business employees.
• Ease financial strain on government assistance programs.

2. States with Mandatory Retirement Plans

As of 2024, several states have implemented or are in the process of implementing mandatory retirement savings programs. Below is a list of states that currently have or are launching such programs:

2.1 States with Active Mandatory Retirement Plans

1. California—CalSavers

• Launched: 2019
• Eligible Employers: Businesses with 5+ employees without an existing retirement plan.
• Employee Contribution: Automatic 5% payroll deduction (adjustable by employees).

2. Illinois: Secure Choice

• Launched: 2018
• Eligible Employers: Businesses with 5+ employees and no employer-sponsored retirement plan.
• Employee Contribution: Starts at 5%, can be adjusted.

3. Oregon—OregonSaves

• Launched: 2017
• Eligible Employers: Any employer without a retirement plan.
• Employee contribution: starts at 5%, with an automatic annual increase up to 10%.

4. Connecticut: MyCTSavings

• Launched: 2022
• Eligible Employers: Businesses with 5+ employees without a retirement plan.
• Employee contribution: default 3% deduction.

5. Maryland – MarylandSaves

• Launched: 2022
• Eligible Employers: Businesses without an existing retirement plan.
• Employee Contribution: automatically enrolled at 5%.

6. Colorado SecureSavings

• Launched: 2023
• Eligible Employers: Businesses with 5+ employees and no employer-sponsored plan.
• Employee contribution: starts at 5%.

7. New York: Secure Choice Savings Program

• Launched: 2022
• Eligible Employers: private-sector employers without a retirement plan.
• Employee contribution: default 3% deduction.

8. Virginia—RetirePathVA

• Launched: 2023
• Eligible Employers: Companies with 25+ employees.
• Employee Contribution: Default 5% payroll deduction.

2.2 States with Upcoming Retirement Programs

Several states are in the process of launching their programs, including:

• Minnesota Secure Choice—expected launch in 2025.
• New Jersey Secure Choice Savings Program—Scheduled for 2025.
• Maine Retirement Savings Program—Rolling out in 2024-2025.
• Hawaii Retirement Savings Program—implementation underway.

2.3 States Consider Retirement Savings Legislation

Several other states are considering legislation to establish mandatory retirement programs, including:

• Pennsylvania
• North Carolina
• Wisconsin
• Nevada

3. How Do State-Mandated Retirement Plans Work?

3.1 Features of These Programs

Most state retirement programs share these key features:

• Auto-enrollment: Employees are automatically enrolled but can opt out.
• Payroll Deductions: Contributions are deducted from employee paychecks.
• No Employer Contributions: Employers are not required to match contributions.
• Portable Accounts: Employees can take their accounts with them if they change jobs.
• State Oversight: Managed by state-appointed boards or financial institutions.

3.2 Employer Responsibilities

Employers are responsible for:

• Registering with the state program if required.
• Enrolling employees and processing payroll deductions.
• Notifying employees about opt-out options.
• Ensuring compliance with state deadlines.

3.3 Employee Participation

• Employees can choose contribution levels.
• Funds are typically invested in Roth IRAs or traditional IRAs.
• Withdrawals follow standard IRA tax rules.

4. Benefits of State-Run Retirement Plans

For Employees:

✅ Accessible retirement savings for those without workplace plans.
✅ Simple payroll deductions make saving easier.
✅ Portable accounts that follow employees between jobs.

For Employers:

✅ Helps attract and retain employees.
✅ No financial burden, as contributions are employee-funded.
✅ Compliance with state laws prevents potential penalties.

5. FAQs About Mandatory Retirement Plans

1. Can employees opt out?

Yes, employees can opt out at any time if they do not want to participate.

2. Are employers required to contribute to the plans?

No, employers are only required to facilitate enrollment and payroll deductions.

3. What happens if an employer doesn’t comply?

Non-compliance may result in fines or penalties, which vary by state.

4. What investment options are available?

Most programs invest in Roth IRAs, with options for conservative and growth-focused investments.

5. Do these programs replace Social Security?

No, they are supplemental savings programs designed to enhance retirement security beyond Social Security benefits.

Conclusion

Mandatory state-run retirement plans are expanding across the U.S. to help workers save for the future. If you are an employer, it’s important to stay informed and comply with your state’s requirements. For employees, these programs offer an easy way to build retirement savings with minimal effort.

If your state doesn’t have a mandatory plan yet, consider exploring other retirement savings options to secure your financial future.

For the latest updates on retirement policies, subscribe to our newsletter or explore our related articles!