State-Mandated Retirement Plans: Helping More U.S. Workers Save

retired couple cooking together in kitchen

Why the push for state-mandated retirement plans? Because Americans are 15 times more likely to save for retirement when it's offered through an employer.

According to the latest National Retirement Risk index, half of U.S. households will lack adequate retirement income to maintain their standard of living during their post-working years — even if they retire after 65.

Research shows that Americans are 15 times more likely to save with employer-sponsored retirement plans. Workers can of course set up a Roth or a traditional IRA independently, but it's simply not compelling enough to help combat the growing retirement preparedness crisis.

To address the retirement savings gap, several states have adopted legislation requiring employers to enroll their employees into a state-mandated retirement plan or a sponsor a plan of their own through the private market.

State-mandated retirement plans are typically administered through payroll deductions, allowing employees to opt out or adjust how much they contribute. Employers themselves are prohibited from making a matching contribution to the plans for their employees, but there are some exceptions for states that have a voluntary marketplace for an employer to select different plan options or allow participation in a state multiple employer plan.

The state-mandated retirement plan: Coming to a state near you?

The requirements for state-mandated retirement plan benefits vary based on individual jurisdictions, the size of the organization and how long it's been in business. Employee requirements also differ based on the state. For example, in states that sponsor Roth IRAs, program participants must not earn more than the IRS maximum to be eligible.

As of May 2024, more than 25 states have proposed state-mandated retirement plan legislation, and 10 states have active mandated plans. Of them, 13 have actually signed such programs into law. With many more states poised to do the same, it's wise to explore your options now so you're not forced to scramble later.

What's next for your business?

While state-mandated retirement plans could offer employers an affordable solution with fewer fiduciary responsibilities, businesses are also subject to one-size-fits-all designs and deadlines that might not work for the organization overall.

Experts suggest that a company-sponsored plan can connect with employees in a more meaningful way and give businesses greater control over the benefits offered. Regardless of the program type, providing a means for employees to save for retirement is a beneficial tool for hiring and retention for companies of all sizes and industries.

Impacted employers will have to weigh the pros and cons before joining a government program or looking to the private market. How much does your company value employee retirement readiness, and what is it willing to do to help them achieve it? Answering these questions can help you decide how your organization will work to mitigate the retirement savings crisis.

Download our free guide to learn more about State Mandated Retirement Plans or visit ADP Retirement Services.

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Only registered representatives of ADP Broker Dealer, Inc. (ADP BD), Member FINRA, an affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068 or, in the case of certain products, a broker-dealer firm that has executed a marketing agreement with ADP, Inc., may offer and sell ADP retirement products or speak to retirement plan features and/or investment options available in such ADP retirement products.