The Payroll Blog

News, tips, and advice for small business owners

State-Mandated Retirement Programs

Posted On
Maggie Saemann

State-mandated retirement plans are a growing trend. The big question is: should you participate in a state-facilitated retirement program or offer your employees an employer sponsored 401(k) plan instead?  


Since 2017, more than half the states in America have either proposed or enacted legislation that requires small businesses to provide retirement savings benefits to their employees either through a state-facilitated IRA plan or a non-government retirement plan that meets state requirements. While every state is different when it comes to retirement savings mandate details, most states do impose a penalty for businesses that don’t comply. State mandates are rising in popularity to address the predicted retirement savings gap. Consider:  

  • About 25% of non-retired adults in the U.S. do not have any retirement savings. 1 
  • Social Security will need to cut benefits if no changes are made to the program 
  • The Social Security Trust Fund is only fully funded through 2033. 2 
  • 28% of small businesses with less than 10 employees offer retirement plans. 3 

Most state-facilitated retirement programs are designed as Roth individual retirement accounts (IRA) and:   

  • may be mandated for businesses employing a certain number of employees 
  • use investment firms and investments chosen by the state 
  • may require employers to automatically enroll employees to contribute 3-5% of their wages 
  • allow workers to opt out of contributing through payroll deduction 
  • could require employers to handle some plan administration 

If your state requires an employee retirement savings benefit, a state-facilitated IRA is not your only option. SurePayroll offers 401(k) plans that fulfill state requirements while offering you (and your employees) additional benefits. 

Check out the main differences between a State IRA versus. a SurePayroll 401(k) plan: 

-Maximum plan contribution limits 

State IRAs have a maximum yearly contribution of $6,500, which is less than one-third of the 2023 401(k) contribution limit of $22,500. 

-Employer matching options  

State IRAs do not allow you to match employee contributions or contribute through profit sharing, while a 401(k) plan like Sure401k®  allows employer contributions at the employer’s discretion. 

-Employer tax credits 

Tax credits are not available for state IRAs. Employers may be eligible for tax credits of up to $5,000 per year for the first three years, as well as an employer contribution credit of up to $1,000 per employee with a SurePayroll 401(k) plan. 

-Employer administration responsibilities 

With a state-facilitated IRA you’ll be required to process payroll contributions, update contribution rates, and manually add newly eligible employees. With a 401(k) plan through SurePayroll, we’ll provide administrative support so you can focus on your business. 

A SurePayroll 401(k) plan also offers: 

  • Competitive and transparent fees - prices built for a small business budget 
  • Flexibility: Choose from pre-selected plans available through Mesirow, our fiduciary partner; or create your own plan from 1,600 investment options 
  • Ease of use – one trusted source for retirement and payroll 

Are You Ready for State- Retirement Savings Mandates?  

Every state is different when it comes to retirement savings mandates. If you have employees working in different states, you may need to consider each state’s requirements. 

Not all retirement plans are created equal. A 401(k) plan from a provider like SurePayroll may be a better way to save for both you and your employees. A state-facilitated IRA has lower employee contribution limits, more administration demands, and is not eligible for SECURE Act 2.0 small business 401(k) tax credits. 

Call 866-497-2028 to find out what your state requires and learn more about getting a 401(k) plan with SurePayroll today. 



Disclaimers / footnotes 



3 December 2022 Small Business Retirement: Investing in Your Future, by SCORE. – Usage rights on file.  



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