Home » Understanding the Benefits of State-Mandated Retirement Accounts for Small Businesses

Understanding the Benefits of State-Mandated Retirement Accounts for Small Businesses

Retirement plans can offer your employees financial security and control over their future. Many states now pass laws requiring small businesses to provide a state-facilitated savings program for their workers. These programs are designed to help people save for retirement, especially those earning lower wages. However, these new rules may also place administrative burdens on small business owners.


A growing number of states are requiring businesses to offer retirement plans. Some states have partnered with private companies to offer low-cost retirement options for small businesses. Others have a program that requires employers to participate in an auto-IRA plan for employees. The programs usually deduct three to five percent from each paycheck and can be opted out anytime.

The programs can be a good option for small business owners who want to avoid the administrative costs of a 401(k) or SIMPLE IRA. However, state-facilitated IRAs may not be a good solution for small businesses that need more resources to manage them. Many state-mandated retirement accounts require the employer to file reports, adjust contribution limits, and make other administrative decisions.

Small businesses often find these tasks to be burdensome. In addition, the tax benefits of state-mandated retirement plans can be confusing for small business owners. They may need to consult a qualified tax, legal, or benefits professional to understand the impact of these plans on their tax situation.

The state-mandated retirement plans may be a good opportunity for small businesses to encourage employees to save for retirement. Studies have shown that people are more likely to save for retirement if their employers make it easy. This is especially true for small businesses with limited resources and payroll staff.


A growing number of states require businesses to offer employees retirement savings accounts. These programs are often designed to be low-cost for small businesses and may include various investment options. In addition, the plans are typically designed to minimize risk for business owners. For example, a business won’t be on the hook if the investment company loses money.

Some states also have fees employers must pay, such as filing fees and annual reports. In addition to lowering employee costs, offering retirement benefits can boost morale and improve productivity. It can also build goodwill with employees, increasing employee loyalty and retention.

Investing options

Consider a state-sponsored plan if you own a small business and want to help your employees save for retirement. These plans are often a Roth individual retirement account (IRA) that allows employees to make after-tax contributions. The money saved in these accounts grows tax-free. In addition, some states allow employers to match employee contributions.

To learn more about state-sponsored retirement options, visit your local Small Business Administration office or chamber of commerce. While saving for retirement might seem obvious, many Americans do not have enough money to retire comfortably. This is why many states pass laws requiring businesses to enroll employees in an auto-IRA program automatically.

These programs are designed to level the playing field for workplace savings. But, they also present challenges for small businesses, which are already juggling many other priorities. Small businesses should be proactive about learning about the new legislation and evaluating their options to avoid a potential headache.

While the implementation date for most of these programs is still several months away, it’s essential to understand the rules and get ready. The good news is that the costs of a state-mandated retirement plan will likely allow businesses to offer one. Most states will offer low-cost options that are easy to use and implement.


Many states have passed laws that require small businesses to offer retirement plans for employees. This is part of an effort to address America’s growing retirement savings gap. These programs can be an excellent way for small businesses to attract and retain employees. They are also a good way to help employees prepare for the future.

However, they have challenges. Many of these programs have lower contribution limits than 401(k) plans and require business owners to perform administrative tasks, such as filing, reporting, and adjusting contributions. These tasks can be time-consuming for smaller businesses and may only be the best solution for some companies.

The number of states that have enacted mandated retirement programs is multiplying. As of the end of 2022, 16 states had already started a mandatory IRA program, and more than half of the remaining states have introduced legislation or formed a study group to consider their options.

These efforts are significant, but they still need to be tested before we can determine whether they will successfully address the retirement savings gap. However, the potential impact on America’s workers is undeniable.


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