State Retirement Plans: Is Your Business Ready?
As retirement savings become a growing priority for governments and employees, state-sponsored retirement programs are gaining traction across the U.S. These initiatives aim to address gaps in retirement savings access but also present challenges for business owners. While they may simplify the process, they lack the flexibility and incentives of private plans. Understanding how state-run plans compare to private options like 401(k)s is key to making the best decision for your business and workforce.
What Are State-Run Retirement Programs?
State-sponsored retirement programs, such as California’s CalSavers, Oregon’s OregonSaves, and Illinois’ Secure Choice, are designed to help employees save for retirement through simple, automatic savings plans. Key features include:
- Mandatory Participation: Employers of a certain size must enroll employees if they don’t offer a private plan.
- Roth IRA Structure: Employee contributions are automatically set between 3%–5% of wages.
- Reduced Employer Burden: Employers facilitate payroll deductions but aren’t responsible for managing accounts.
The Growing Popularity of State Plans
With over 19 states offering or planning similar programs, participation in state-sponsored plans has exceeded $1 billion in assets as of 2023. These programs provide an entry point for small businesses hesitant to offer retirement benefits. However, their ease of use comes with trade-offs, making them less suitable for businesses aiming to attract top talent or offer comprehensive benefits.
The Key Limitations of State-Run Plans
While state programs address critical gaps in retirement savings, they fall short for businesses and employees seeking more robust options.
1. No Employer Contributions
State plans don’t allow employers to offer matching contributions, which are vital for encouraging participation and improving employee satisfaction.
2. Limited Investment Options
Employees may find the restricted investment choices insufficient to meet their financial goals, particularly those seeking diversified portfolios.
3. Minimal Competitive Advantage
State-mandated plans don’t differentiate your business when competing for skilled employees.
4. Compliance Responsibilities
Although state programs reduce administrative tasks, employers are still required to meet enrollment deadlines and ensure compliance, adding complexity.
Private Retirement Plans: A Better Alternative for Growing Businesses
For businesses aiming to align retirement benefits with growth objectives and employee satisfaction, private options like 401(k)s or Pooled Employer Plans (PEPs) are often the superior choice.
Advantages of Private Plans
- Customizable Features: Design your plan with options such as automatic escalation, profit-sharing contributions, and diversified investments.
- Tax Benefits: The SECURE 2.0 Act expands tax credits for small businesses offering retirement plans, making private plans more affordable.
- Employee Retention: A robust 401(k) plan signals your commitment to your workforce, boosting morale and loyalty.
- Scalability: Private plans grow with your business, offering flexibility as your needs evolve
Why Now Is the Time to Act
Mandatory state retirement programs are becoming the norm, making the decision to implement your own plan or default to a state option increasingly urgent. Proactively adopting a private plan provides several advantages:
- Avoiding Penalties: Many states impose fines for noncompliance with mandatory plan deadlines.
- Maintaining Control: Managing your own plan ensures that you—not the state—set the terms for employee retirement savings
How Maxus Plan Solutions Can Help
Navigating state requirements and private plan options can feel overwhelming. Maxus Plan Solutions simplifies the process, offering:
- Comprehensive Plan Setup: Whether you’re transitioning from a state plan or starting fresh, we’ll guide you every step of the way.
- Compliance Expertise: Stay ahead of ERISA, SECURE 2.0, and other regulatory requirements.
- Ongoing Support: Our solutions grow with your business, ensuring long-term success.
Your Move: Take Control of Your Business’s Future
Choosing a retirement plan is about more than compliance—it’s a strategic investment in your team and your company’s growth. If you’re ready to explore alternatives that surpass the limitations of state-sponsored plans, contact Maxus Plan Solutions today. Together, we’ll create a plan tailored to your business needs.