Government Mandated Retirement Plans
There is a gap in retirement plan access in America – as an estimated 60 million working Americans do not have access to workplace retirement savings plan. Despite the federal government’s multiple perfunctory attempts to address the issue, by enacting legislation designed to reduce barriers and provide incentives to encourage retirement plan adoption by small businesses – the access “gap” persists. In fact, according to the Center for Retirement Research at Boston College, only about half of all private sector workers in America have access to a workplace retirement savings program. As a result, State and local governments have come to fear a looming “retirement crisis” and are actively pursuing strategies to close the gap – including mandating that every private employer sponsor a payroll-deduct retirement savings program for their employees.
Nevertheless, this is a government mandate we can and should all support!
In fact, 19 states have already enacted legislation requiring that every private employer offer a workplace retirement savings program for their employees. Furthermore, an additional 28 states are currently exploring similar measures or have introduced legislation to create state-sponsored retirement programs. As a result, there are basically two types of programs being created.
Click below for interactive information
- New Mexico
- New Jersey
- New York
There are major differences between the various state-sponsored retirement programs, beyond their mandatory vs. voluntary nature. The majority of these state-sponsored retirement savings programs are structured around a payroll-deduct Roth IRA (after-tax), which requires the automatic enrollment of every eligible employee (“Auto-IRA”). Generally, every business that has been in existence for at least 2 years and has more than a certain number of employees (typically 5+ employees), are required to implement a program within a specified period of time. Regardless, the common thread is that business owners have zero say in their individual plan design – these programs are one-size-fits-all solutions.
Not ALL Retirement Savings Programs Are Created Equally!
For affected businesses in states with retirement plan mandates, now is the time to evaluate the program and consider your options. While providing a workplace retirement savings program is mandatory, any business may elect to adopt their own qualified retirement savings plan – instead of using their State’s Auto-IRA. The primary differences are related to the plan type and overall design – including such things as eligibility & enrollment requirements, contribution rates & limits, as well as withdrawal restrictions.
The state-sponsored Auto-IRA structures lack the inherent flexibility of private 401(k) plans, such as limited annual contributions and income restrictions that may even prohibit business owners (and their executives) from participating. Whereas, a private 401(k) solution provides greater flexibility and significant advantages – including available Federal tax credits for employers and the ability for owners to maximize contributions to their own account (without income-based restrictions).
Prosper Retirement Partners believes all business owners should have a retirement savings plan that caters to their individualized preferences and financial resources, as well as create a more effective tool to attract and retain the best employees. We have evolved the private 401(k) plan to shed fiduciary liability, streamline administrative responsibilities, provide access to high-quality investments, and maximize available tax credits to make them even more cost-effective.