State-Run Retirement Programs: New Requirements for Employers
Several states have enacted legislation to create state-run retirement programs that workers in the private sector can join. Even though these plans are run by the state and don't require (or even allow) employers to contribute to them, they typically still impose some obligations on employers. Employers can generally meet the state requirements by offering a 401(k) plan, SIMPLE IRA or SEP through a commercial provider. Here's an overview of these state requirements.
State: California
Name and Purpose: Calsavers is a state-based payroll withholding savings program using Roth (post-tax) individual retirement accounts.
Status: Employer registration begins July 1, 2019.
Summary of Employer Requirements: All employers with five or more employees must either register with Calsavers or offer a qualifying employer-sponsored retirement plan. The registration deadline for employers that don't offer a qualifying employer-sponsored retirement plan is:
- June 30, 2020 if they have 100 or more employees.
- June 30, 2021 if they have 50 to 99 employees.
- June 30, 2022 if they have 5 to 49 employees.
These employers must setup an account with Calsavers, upload payroll files to add employees to the account, and deduct and remit employee contributions. They must also provide an information packet to employees. The packet must also be provided to non-participating employees during open enrollment each year. Employees will be automatically enrolled in the program unless they opt out.
State: Connecticut
Name and Purpose: The Connecticut Retirement Security Program is a state-based payroll withholding savings program using Roth (post-tax) individual retirement accounts.
Status: Expected to launch in 2019.
Summary of Employer Requirements: Covers employers with five or more employees that don't offer a qualifying employer-sponsored retirement plan. These employers must provide employees with information on the state program, enroll employees in the program, and deduct and remit employee contributions. More information is expected prior to launch.
State: Illinois
Name and Purpose: Illinois Secure Choice is a state-based payroll withholding savings program using Roth (post-tax) individual retirement accounts.
Status: Partially launched.
Summary of Employer Requirements: All employers with 25 or more employees in the state must register with Illinois Secure Choice. The registration deadline for employers is:
- July 1, 2019 if they have 100-499 employees.
- November 1, 2019 if they have 25 to 99 employees.
- The registration deadline for employers with 500 or more employees has already passed.
If an employer doesn't offer an employer-sponsored retirement plan, they will then be required to enroll in Illinois Secure Choice and facilitate the program, including deducting and remitting employee contributions. Employers required to participate in the program must automatically enroll employees unless the employee opts out of it. These employers must also have an open enrollment period at least once every year for employees who previously opted out of the program to enroll. Covered employers must also provide an information packet to employees and new hires.
State: Maryland
Name and Purpose: The Maryland Small Business Retirement Savings Program is state-based payroll withholding savings program using individual retirement accounts.
Status: Expected to launch in late 2019.
Summary of Employer Requirements: Employers that don't offer a qualifying employer-sponsored retirement plan must automatically enroll employees in the program unless the employee opts out of it. Little is known about the program at this time. The Maryland Small Business Retirement Savings Board is expected to issue additional rules.
State: New Jersey
Name and Purpose: The New Jersey Secure Choice Savings Program is a state-based payroll withholding savings program using individual retirement accounts.
Status: The program is scheduled to be implemented by March 28, 2021.
Summary of Employer Requirements: If an employer has 25 or more employees, has been in business at least two years, and doesn't already offer a qualifying retirement plan, the employer must:
- Establish a payroll deposit retirement savings arrangement to allow employees to participate in the program within nine months of when the program opens for enrollment.
- Automatically enroll all employees who have not opted out of participation.
- Deduct employee contributions and remit them to the program.
- Designate an open enrollment period at least once per year to allow non-participating employees to opt in.
Employers that participate in the program must also supply an information packet to existing employees upon implementation of the program and to new employees at the time of hire.
State: Oregon
Name and Purpose: OregonSaves is a state-based payroll withholding savings program using Roth (post-tax) individual retirement accounts.
Status: Partially launched.
Summary of Employer Requirements: All employers must register with the program or certify that they are exempt (because they already offer a qualifying employer-sponsored retirement plan). The deadline for employers with 20 or more employees has already passed. However, employers with 10-19 employees have until May 15, 2019 and employers with 5-9 employees have until November 15, 2019 to register. Employers with fewer than five employees must do so by May 15, 2020.
If an employer doesn't offer a qualifying employer-sponsored retirement plan, they must then enroll in and facilitate OregonSaves, including withholding and remitting employee contributions, retaining certain records, and completing administrative tasks. Employers required to participate in the program must automatically enroll employees unless the employee opts out of it.
Conclusion:
Employers in California, Connecticut, Illinois, Maryland, New Jersey and Oregon should review these laws carefully to ensure compliance. Even if you aren't located in one of these states, many other jurisdictions are considering similar programs, so watch for developments.
