Why States are Mandating Small Business Retirement Plans

Bridging the gap: State mandates were designed to make retirement savings plans accessible for all employees, regardless of who they work for.

Encouraging automatic saving: Helping more workers set aside money for the future means less reliance on state-funded public assistance programs down the road.

Staying compliant: Understand the implications for your small business and the options you have available to satisfy retirement state mandates.

Millions of Americans don’t have access to an employer-sponsored retirement plan, which can make a financially secure retirement seem more like a dream than a future reality. State governments are stepping in with legislature aimed at leveling the playing field and helping more residents become retirement ready.

For employers, these mandates raise practical questions about compliance, timelines, and available retirement plan options—especially for small businesses that don’t currently offer a plan.

The case for retirement state mandates

In the last ten years, over half of the states in this country have introduced legislation to implement or investigate options for state-sponsored retirement savings plans. Why is this so important that it needs to be mandated at a state level?

Longer, more expensive lifespans

A declining number of Americans are confident in their ability to live comfortably throughout retirement—and among those who don't feel confident, 40% say their lack of confidence is due to having little to no savings.¹ Pair that with the fact that people have longer potential lifespans today than in the past, and it’s easy to see why so few people are confident they can fund their entire retirement.

Adding to the problem is that defined benefit plans (like pensions) have become increasingly rare for employers to offer, meaning the burden of obtaining a financially secure retirement is now falling on employees, rather than their employer. Insufficient savings—coupled with subpar economic growth, rising household debt, and an increasing cost of living—have all contributed to preventing today’s workers from achieving the retirement they deserve.

Inequity in retirement plan access

It’s clear that employees generally need help from their employers to save for retirement, but the playing field isn’t exactly level. 88% of employees who are offered a 401(k) or similar plan through their employer are saving for their retirement —while that number is less than half for workers who don’t have similar access.²

State-run retirement plans are designed to help make sure more employees have an easy way to save for the future through their workplace.

The retirement savings gap

Employees who aren’t saving enough for retirement now and plan to live off Social Security in the future are setting themselves up to need support as they age. When people retire and don’t have adequate savings to cover things like healthcare, housing costs, and other everyday essentials, it’s the state government that ends up paying more.

The root of the problem is this: People aren't as likely to save for retirement if they don’t have an easy, ready-made way to do so. More than 30% of employees in the private sector don’t have access to a retirement savings plan through their employer.³

How can we set today’s workforce up for a successful future when so many workers don’t even have access to a savings program? How can we realistically expect workers to own their retirement readiness if we don’t give them a way to do it?

What state retirement mandates mean for small business owners

Cost may be an initial concern for some small businesses—but the mandates aren't going to take funds out of owners’ pockets. The plans will be state-funded and state-run.

Additionally, the state mandates will allow business owners to save for their own retirement—which may not have been an option before if no plan was offered through the business and the owner never opened an Individual Retirement Account (IRA) for themselves.

What employers are required to do under state mandates

While the specifics vary by state, most retirement mandates follow a similar framework. In general, they apply to employers that meet certain size and tenure thresholds and do not already offer a qualifying retirement plan.

Which employers are typically covered?
- Most mandates apply to private‑sector employers that have a minimum number of employees and have been in business for a defined period—particularly those that do not already offer a qualifying workplace retirement plan.
What generally triggers compliance?
- Employers are typically required to take action if they do not currently sponsor an eligible retirement plan, such as a 401(k) or another option that meets state requirements.
What are the employer’s primary responsibilities?
- In many cases, employers are responsible for registering with the state program, facilitating employee payroll deductions, and distributing required notices—without being required to contribute company funds to employee accounts.
When do deadlines typically apply?
- States often implement mandates in phases, with registration or participation deadlines tied to employer size, giving businesses a defined window to comply or choose an alternative plan.

Types of state-sponsored retirement programs

While the goals of the state-mandated retirement programs are all centered around helping workers reach retirement readiness and future financial independence, the specifics of the mandates vary by state. The local state governments were tasked with maximizing effectiveness to safeguard our collective future as a society, while minimizing cost and financial risk to the employers the mandates are required for. To help accomplish this, state legislations have outlined four retirement program models.

Mandatory auto-IRA programs: Employers enroll eligible employees and facilitate payroll deductions, while the state administers the IRA accounts and investment management.
Voluntary retirement plan marketplace: Employers can choose and connect with private retirement plan providers through a state‑facilitated marketplace, rather than enrolling in a single state‑run program.
Voluntary state-based open multiple employer plans (MEPs): Employers can join a shared retirement plan sponsored or supported by the state, allowing multiple businesses to pool administrative responsibilities and costs.
Voluntary payroll deduction IRA programs: Employers offer employees the option to save through payroll deductions into individual IRAs, typically with minimal employer involvement and no required employer contributions.

Use the map below to learn more about the program details and guidelines for each state's mandated retirement program.

Alternatives to state-mandated retirement programs

In most states, employers can satisfy retirement mandate requirements by offering an alternative qualified retirement plan—such as a 401(k) or a pooled employer plan (PEP)—instead of participating in a state‑facilitated program.

Ascensus offers a variety of retirement plan options that satisfy state mandate regulations and are designed with business owners and their financial advisors in mind.

Ready to get started?

Understanding whether your business is required to comply, and which options meet your state’s mandate, is the first step toward protecting your business and helping employees save for retirement.

To learn more about your options for satisfying state retirement mandates, contact our retirement specialists at 800-345-6363.