In an attempt to help the workforce save for retirement, state governments have stepped up to the plate. Since 2012, 30 states have introduced some form of retirement legislation.
So far, 10 states have enacted a government-sponsored retirement savings program: California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, New York, Oregon, Vermont, and Washington. But not everyone is tackling the issue of the retirement crisis the same way. The intention of the state retirement mandates is to level the playing field so that everyone has a more equal footing.
While all the state legislation focuses on retirement readiness and financial security, how each state goes about it can vary.
Mandatory Individual Retirement Accounts
In California, Oregon, Illinois, Maryland, Connecticut, New Jersey, and the city of Seattle, governments are attempting to close the savings gap by mandating a retirement savings vehicle for private-sector employees who do not have access to an employer-sponsored plan.
Businesses in these states have two options: offer an eligible retirement plan from a private provider or enroll in the state run retirement option. Once a business is enrolled, employees who do not opt-out of the program automatically will be enrolled in a payroll deduct Roth individual retirement account, aka Roth IRA.
In these state-run auto-IRAs, retirement contributions come directly out of worker’s paychecks. These employees are able to save up to the IRA maximum contribution limit of $6,500 per year (with an additional $1000 in catch-up contributions if they are 50 or older). The default contribution rate varies from state to state but usually starts at a default rate of between 3-5% of the employee’s income withheld from each paycheck and deposited into the account. Employees have the right to adjust or cancel that contribution at any time.
How does a state-mandated IRA compare with a small business 401(k) plan?
While saving for retirement is always the end goal, not all savings vehicles are created equally. Across the board, 401(k) plans allow both business owners and their employees to contribute more each year towards their future, while gaining greater tax benefits than saving in an IRA.
If you’re a small business owner in Oregon, Illinois, or California, we’ve broken exactly how your state’s plan stacks up against a Ubiquity 401(k) plan.
Voluntary Payroll Deduct IRAs
New York’s program works similarly to the mandatory, state-sponsored IRA plans above. The New York Secure Choice Savings Program provides New York business owners who don’t currently offer a retirement plan the option to offer an auto-IRA, but does not set it as a requirement.
Open Multiple Employer Plans
Vermont and Massachusetts have chosen a voluntary multiple employer plan system (also known as an MEP). MEPs allow businesses to band together and offer a 401(k) plan to their employees with less of the financial, administrative, and compliance burden of running their own plans.
The State Retirement Marketplace Approach
The state of Washington chose a different route in helping their citizens save for the future. It has set up retirement marketplaces designed to bring together business owners and private retirement plan providers. The marketplace offers a variety of IRA, 401(k), and profit-sharing products for employers to choose from.
In Place
Coming Soon
No Mandate
Act before the 2022 401(k) deadline. 
