The current state of state retirement

Americans are facing a retirement crisis. According to the latest statistics from the U.S. Bureau of Labor Statistics, 45% of employers with fewer than 100 employees do not offer a retirement plan [1].

Many states are looking to remedy this by providing a state-sponsored IRA savings plan to small businesses. Currently, ten states have enacted legislation or launched pilot programs, while others have legislation pending [2]. There is also talk on Capitol Hill about federally mandating retirement plans for businesses with 10 or more employees.

What is a state-sponsored retirement plan?

The goal of state-sponsored retirement plans is to fill unmet gaps in coverage by offering simple, low-cost retirement savings plans to employees. While you don’t have to participate in a state-run program, many states are mandating by law that businesses offer some type of retirement plan. Businesses can opt to create their own private-sector plans through a professional retirement services provider.

State-sponsored retirement programs:

• Are usually designed as Roth and traditional individual retirement accounts (IRAs)
• May be mandated for businesses that don’t offer a retirement plan for employees
• Use investments and established firms vetted by the state
• Typically include an automatic enrollment arrangement
• Allow employees to save easily via automatic payroll deductions
• Are designed to keep investment and management costs reasonable
• Intended to improve retirement savings outcomes for people with limited savings options
• Enable small businesses to attract top talent by offering a retirement savings benefit

State-run IRA or 401(k) — what’s the difference?

State-run IRA plans have limits on employee contributions, and companies aren’t allowed to make employer contributions. The employer is also typically responsible for administration and remitting employee contributions.

With an ePlan Services 401(k), employees can make larger contributions than state-run programs, and employers may also make profit sharing or matching contributions at their discretion. ePlan Services plans satisfy the state mandate and offer eligible employers potential tax benefits, such as those defined by the federal Setting Every Community Up for Retirement Enhancement (SECURE) Act.

SECURE Act benefits include:

• Up to $5,000 in tax credits each year for three years
• $500 annual credit when your business establishes a retirement plan with automatic enrollment
• Start a profit-sharing plan right up to your tax filing deadline

Also, with a state run IRA, you are responsible for administration and processing. With features like online compliance testing, 5500 filing and preparation, and payroll integration, ePlan Services can simplify the administration of your 401(k) plan.

State Specific Retirement Plans

California

California is providing a state-sponsored IRA savings plan to small businesses. The goal is to fill unmet gaps in coverage by offering simple, low-cost retirement savings plans to employees.

Sponsored by the state, the CalSavers retirement savings plan is facilitated by employers and funded by employee investments via payroll deductions.

The CalSavers program:

• Uses Roth and traditional individual retirement accounts (IRAs)
• Has automatic enrollment with a default savings rate starting at 5 percent of gross pay (employees can opt out of or change their rate at any time)
• Allows employees to save through payroll contributions
• Offers account holders a choice of investment options including money-market, core bond, global equity and target-date funds
• Does not allow employers to match employee contributions

Do businesses have to use CalSavers?

No. Businesses can establish their own plan, such as a 401(k) retirement plan or a SIMPLE IRA, to satisfy the state requirement. They can also go through a retirement services provider like ePlan Services. Whatever they choose, businesses must establish a retirement plan or register with CalSavers before the end of their enrollment period:

• Starting July 1, 2019 through September 30, 2020 —100-plus employees
• Starting July 1, 2020 through June 30, 2021 — 50 to 99 employees
• Starting July 1, 2021 through June 30, 2022 — 5 to 49 employees
• Starting January 1, 2023 — 1-4 employees

Recent California legislation expanded the CalSavers mandate to businesses with at least one employee.

Illinois

Illinois is providing a state-sponsored retirement plan to businesses with 25 or more employees. The goal is to fill unmet gaps in coverage by offering simple, low-cost retirement savings plans to employees.

What is Illinois Secure Choice?

Sponsored by the state, the Illinois Secure Choice retirement savings plan is facilitated by employers and funded by payroll deductions into retirement investments.

The Illinois Secure Choice program:

• Uses Roth individual retirement accounts (IRAs)
• Has a default savings rate starting at 5 percent of gross pay (employees can opt out of or change their rate at any time)
• Auto-enrolls employees in payroll contributions, though they can opt out any time
• Has investment options overseen by the Illinois Secure Choice Savings Board
• Offers account holders a range of investment options

Do businesses have to use Illinois Secure Choice?

No. Businesses can establish their own plan, such as a 401(k) retirement plan or a SIMPLE IRA, to satisfy the state requirement. They can also go through a retirement services provider like ePlan Services. Whatever they choose, businesses with 25 or more employees must establish a retirement plan.

Oregon

Oregon is providing a state-sponsored retirement plan to businesses. The goal is to fill unmet gaps in coverage by offering simple, low-cost retirement savings plans to employees.

What is OregonSaves?

Sponsored by the state of Oregon, this retirement savings plan is facilitated by employers and funded by employee payroll deductions into retirement investments.

The OregonSaves program:

• Uses Roth IRA retirement accounts with automated enrollment
• Is completely voluntary for employees
• Is fully vested and portable for employees who change jobs
• Requires a 5 percent contribution of gross pay
• Automatically increases annual employee contributions
• Automatically increases annual employee contributions 1 percent until savings rate reaches 10 percent
• Offers account holders a choice of investment options
• Enables employees to opt out of or change their automatic contribution rate at any time.
• Invests first $1,000 in the OregonSaves Capital Preservation Fund and savings of over $1,000 in an OregonSaves Target Retirement Fund (Subject to change based on OregonSaves Program)

Do businesses have to use OregonSaves?

No. Businesses can establish their own plan, such as a 401(k) retirement plan or a SIMPLE IRA, to satisfy the state requirement. They can also go through a retirement services provider like ePlan Services. Whatever they choose, all Oregon businesses must establish a retirement plan before the end of their enrollment period:

• 5 or more employees: The deadline has passed. Register your business today.
• 3-4 employees: March 1,2023
• 1-2 employees: July 31, 2023
• Businesses utilizing a Professional Employer Organization (PEO) or Leasing Agency: July 31, 2023

Plan administration? ePlan Services has you covered.

Regardless of which plan you choose, it can be challenging to update employee demographics, edit payroll lists, and submit contributions.

ePlan Services can lighten your administrative burden. Our experts can work with you to determine which of the many plans we offer will best fit the needs of your business and employees. We can integrate your 401(k) with any of our payroll partners to simplify employee setup and payroll processing of your plan.

We also assist with eligibility, compliance testing, and help ensure documents are provided in a timely manner.

[1] U.S. Bureau of Labor Statistics, National Compensation Survey, 2018, bls.gov/ncs/

[2] California, Connecticut, Illinois, Maryland, Massachusetts, New York, New Jersey, Oregon, Vermont, Washington, State Retirement Savings Resource Center, AARP Public Policy Institute https://www.aarp.org/ppi/state-retirement-plans/savings-plans/

The foregoing is provided for informational purposes only, and is not intended to be tax or legal advice. Consult your licensed attorney, accountant, or other tax professional to discuss your particular facts, circumstances, and how these opportunities might apply to your business.