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.