
State-Mandated Retirement Programs

State-Mandated Retirement Programs
To bridge the retirement gap, several states have enacted state-mandated retirement savings programs by either requiring employers to provide an employer-sponsored qualified retirement plan or enroll their employees in a state-sponsored retirement program. Employers that fail to comply will face penalties. Requirements and penalties vary by the state. Below is a list of state with upcoming deadlines in 2023:
Colorado
Businesses with 5-14 employees that have been in operation for two or more years are required to provide an employer-sponsored retirement plan by June 30, 2023. For businesses with 15-49 employees, the deadline was May 15, 2023. Businesses with 50 or more employees should establish a plan as soon as possible. Per eligible employee penalty is $100.
Virginia
Businesses with 25 or more employees and have been in business for at least two years must provide an employer-sponsored plan by July 1, 2023. Per eligible employee penalty is $200.
Oregon
Businesses with three or more employees must provide an employer-sponsored plan as soon as possible. For businesses with 1-2 employees, the deadline is July 31, 2023. Per eligible employee penalty is $100.
Illinois
Businesses with 16 or more employees that have been in operation for at least two years are required to provide an employer-sponsored retirement plan as soon as possible. Deadline for businesses with 5-15 employees is November 1, 2023. Per eligible employee penalty is $250 for the first year and $500 for each subsequent year.
Employers have two options –provide an employer-sponsor qualified retirement plan or enroll employees in the state-sponsored program. While sponsoring your own retirement plan may seem like the more cumbersome option, take into consideration the following pitfalls of state-sponsored programs:
- Significantly lower contributions limits
- Cannot incorporate profit sharing
- Generally only Roth accounts are available (no Pre-Tax option)
- Standard plan design
- Forego the potential for greater tax deductions
- Loans are not permitted
Contact us to see how you can design a cost-effective qualified retirement plan for your small business before implementing an inadequate state-sponsored program.