State-mandated vs. Employer-sponsored Retirement Plans: Which Option Checks All Your Boxes?

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A state-mandated retirement plan offers a convenient option to help employees save. But compared to an employer-sponsored retirement plan, are you getting the benefits your company really needs?

Over 55 million U.S. workers currently don't have access to a retirement plan sponsored by their employer. To bridge this gap, a majority of states have contemplated state-mandated retirement savings plan legislation, and 13 have already signed such programs into law.

retirement plan map graphic ADP

If your company doesn't currently offer a retirement savings plan, it's only a matter of time before you'll have to. Take a closer look at employer-sponsored and state-sponsored retirement plans to determine what best meets your company's goals.

Key retirement plan differentiators at a glance

1. Investment options

State-sponsored: You generally don't have the ability to customize investment choices based on your employees' unique needs. Instead, a state-selected board chooses a firm to make investment decisions

Company-sponsored: Choose from a range of investment options at various levels of risk and savings potential. Employees have more control over their investment decisions depending on factors like their age, savings goals and risk tolerance.

2. Plan types

State-sponsored: State plans are commonly Roth individual retirement accounts (IRAs), which allow participants to set aside after-tax income up to a specified amount each year. Employee contributions are deducted from post-tax income, so their money is generally tax-free at the time of withdrawal after age 59½.


Sponsoring your own plan gives employers and plan participants broader options beyond a Roth IRA. For example, a 401(k) allows for pre-tax deductions, saving you and your employees money by reducing your payroll taxes and their taxable income. Not ready for a 401(k)?

Working with a company like ADP® gives you access to SIMPLE and SEP IRAs, allowing you to choose a plan with the benefits and administrative responsibilities that best fit your needs.

ADP state mandated retirement plan features benefits

Above: Key ADP retirement plan differentiators at a glance

State-sponsored: With a Roth IRA, employees have a deferral limit of up to $6,000 from their annual salary. Participants age 50+ are also entitled to catch-up contributions of $1,000 per year. Employers are not permitted to make contributions.

Company-sponsored: If you choose to offer a 401(k), employees can contribute up to $20,500 for 2022. Anyone age 50+ is also eligible for an additional catch-up contribution of $6,500 per year. Employers may contribute at their discretion. The annual limit on total employee/employer contributions for 2022 is $61,000 (or $67,500 with the catch-up contribution).

3. Plan maintenance

State-sponsored: For employees, state-sponsored IRAs automatically enroll workers as they become eligible. For employers, they're a low-cost solution with fewer fiduciary responsibilities.

Company-sponsored: In addition to auto enrollment, a private plan can provide more options to increase participation and savings rates such as auto-escalation, financial wellness tools and personalized participant communications. Sponsoring a plan such as SIMPLE IRA or SEP IRA also eliminates the additional fiduciary responsibilities of a 401(k).

Adding a retirement plan to your employee benefits arsenal comes with strategic advantages — from a competitive edge in the talent search to increased employee engagement. But choosing the right plan is up to you.

To weigh your retirement plan options, refer to our State-sponsored and Employer-sponsored Retirement Plans brochure for more information.

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*Registered representative of ADP Broker Dealer, Inc. (ADP BD), Member FINRA, an affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068 and Associated person of ADP Strategic Plan Services, LLC (SPS) an SEC Registered Investment Adviser. Registration does not imply a certain level of skill or services.

SIMPLE IRA and SEP are offered through ADP Broker-Dealer, Inc. (ADPBD), Member FINRA, an affiliate of ADP, Inc., One ADP Blvd, Roseland, NJ 07068. Only registered representatives of ADPBD may offer and sell such retirement products and services or speak to retirement plan features and/or investment options available in any ADP retirement product. American Century Investments Inc. (ACI), ADP, Inc. and ADP Broker-Dealer, Inc. (ADP) have a distribution and administration agreement with ACI to maintain a program under which ACI provides investment options to participants in adopting employers' SEP and SIMPLE IRAs marketed by ADP (for which ADP receives reasonable fees); and ADP and ACI share administrative responsibilities to support the best interests of SEP and SIMPLE IRA plan participants in adopting such plans.

Unless otherwise agreed in writing with a client, ADP, Inc. and its affiliates (ADP) do not endorse or recommend specific investment companies or products, financial advisors or service providers; engage or compensate any financial advisor or firm for the provision of advice; offer financial, investment, tax or legal advice or management services; or serve in a fiduciary capacity with respect to retirement plans. All ADP companies identified are affiliated companies.