Which States Will Have a Retirement Mandate in 2025?
Several states will require private-sector employers to offer retirement savings programs in 2025. Currently, five states actively enforce mandates: California, Illinois, New York, Oregon, and Connecticut. Additional states, including Nevada, Delaware, Vermont, and Maryland, will introduce requirements in 2025.
Key deadlines include:
- California: Businesses with 1-4 employees must comply by December 31, 2025.
- Nevada: Employers with 1,000+ employees must register by July 1, 2025, and those with 500-999 employees by January 1, 2026.
- Delaware: Employers with five or more employees must comply by January 1, 2025.
- Maryland: Newly eligible businesses must register by December 31, 2024.
Who is Subject to the Mandates?
Generally, businesses with a certain number of employees that do not already offer a qualified retirement plan must participate in state-mandated programs. Eligibility varies by state, but most apply to businesses with at least 5-10 employees. Some states, such as California and Maryland, include businesses with only one employee.
How to Comply with State Mandates
Employers must:
- Determine whether their business meets the employee count threshold for participation.
- Register for their state’s retirement program by the required deadline.
- Set up payroll deductions for employee contributions.
- Provide employees with information about the program, including opt-out options.
- Maintain records of employee participation and contributions.
Non-compliance penalties range from $250 to $500 per employee, depending on the state.
Options for Compliance: State Plan vs. Employer-Sponsored Plan
Employers have two primary options:
- Utilize the State-Run Retirement Plan
- Typically structured as Roth IRAs with automatic payroll deductions.
- Employees contribute post-tax dollars; employers cannot make contributions.
- Limited investment options managed by the state.
- Lower administrative burden but lacks flexibility for employers.
- Set Up a Private Employer-Sponsored Retirement Plan (e.g., 401(k))
- Allows pre-tax or Roth contributions.
- Employers can offer matching contributions.
- Greater investment options and customization.
- Higher administrative responsibilities but may offer long-term financial advantages for employees.
Costs vs. Benefits: State Plan vs. Employer Plan
| Feature | State Plan (Auto-IRA) | Employer-Sponsored 401(k) |
|---|---|---|
| Employer Matching | ❌ Not allowed | ✅ Allowed |
| Contribution Type | After-tax (Roth) | Pre-tax & Roth options |
| Employee Contribution Limit | $7,000 (2024 limit) | $23,000 (401(k) limit) |
| Employer Costs | Low (administrative setup) | Moderate (administration, potential matching) |
| Investment Options | Limited (State-managed funds) | Flexible (Mutual funds, ETFs, etc.) |
| Tax Benefits | None for employer | Employer tax deductions & credits |
Tax Credits for Employers Setting Up a 401(k)
Employers starting a new 401(k) plan may qualify for federal tax credits under the SECURE Act:
- 50% of administrative costs, up to $5,000 per year for the first three years.
- Additional $500 per year for three years if the plan includes automatic enrollment.
- Small businesses with up to 100 employees can benefit the most from these credits.
Final Thoughts
With state mandates expanding, businesses should proactively decide whether to enroll in a state-run program or establish a private retirement plan. While state plans provide a simple compliance route, they lack employer contributions and tax benefits. A 401(k) plan can offer greater financial advantages for both employers and employees, especially with available tax incentives.
To avoid penalties and maximize benefits, review your state’s deadlines and consider implementing a retirement plan that aligns with your business’s long-term goals.
