New Rules for State-Mandated Retirement Plans: What Employers Need to Know

Key Takeaways

• Multiple states have enacted laws mandating employer-facilitated retirement plans, with more states expected to implement similar requirements in the coming years.
• Employers must understand specific state requirements, including deadlines and penalties for non-compliance, since details vary significantly across jurisdictions.
• A retirement plan can enhance employee satisfaction and retention, demonstrating a company’s commitment to employee financial well-being.

Table of Contents

• Introduction
• Overview of State-Mandated Retirement Plans
• State-Specific Requirements and Deadlines
• Benefits of Compliance for Employers
• Steps to Implement a Retirement Plan
• Resources for Employers

With a growing focus on bridging the retirement savings gap, new state-sponsored retirement plans are becoming a reality for employers across the U.S. As of July 2025, several states require private-sector businesses to facilitate employee access to retirement savings programs. These mandates are driven by the need to help workers accumulate retirement savings, especially those at small and mid-sized companies. For many Americans, especially those who do not have access to employer-sponsored retirement options, the existence of these plans could be transformative, potentially closing the significant savings gap that leaves many approaching retirement without sufficient funds. Understanding these requirements is essential for businesses aiming to stay compliant, avoid costly penalties, and support their employees’ financial well-being. Ignorance of or failure to comply with these new obligations can result in significant fines and reputational damage, so it’s more important than ever for employers to be proactive.

Employers navigating these changes must pay close attention to each state’s unique rules, including implementation deadlines and the consequences for non-compliance. While these new obligations may seem daunting, leveraging available resources and understanding program options can make the process smoother and enhance your organization’s reputation as a supportive, attractive workplace. Even businesses with limited resources can utilize the streamlined enrollment processes, communication tools, and support offered by most state-run programs. In addition, clear internal communication and a strategic approach can ease the transition, turning what might feel like a compliance headache into an opportunity to strengthen your team and reduce long-term turnover costs.

Overview of State-Mandated Retirement Plans

State-mandated retirement plans require certain employers to offer a retirement savings option to eligible employees. These state-facilitated programs typically target employers who do not currently provide retirement benefits. The intent is to make retirement savings accessible for more workers, particularly in businesses that may not have the resources or expertise to establish their own 401(k) or similar plans. Structure and requirements vary, but most plans operate as payroll-dedication IRAs managed by the state. Participation is generally automatic for employees, though opt-out options are provided, and employees can contribute more or less than the default set by the program. Many of these programs use default contribution rates and simple, streamlined enrollment processes to lower barriers for both employers and employees. States handle the investment management and administrative responsibilities, which means employers often have minimal fiduciary risk and do not have to manage investment choices themselves.

Most state-sponsored plans aim to close the persistent retirement coverage gap in the private sector. Employer obligations mainly involve facilitating payroll deductions and communicating with staff, while the actual plan administration remains the state’s responsibility. These programs generally target workers without access to employer-sponsored 401(k)s or 403(b)s plans. Eligibility, enrollment, and payroll integration processes are facilitated through state-run portals designed to be user-friendly.

State-Specific Requirements and Deadlines

Employers must carefully track the rules in each state where they operate, as the mandates, eligibility thresholds, and enforcement mechanisms are unique to each jurisdiction. The expanding landscape means staying updated on your obligations is critical, especially for companies operating across state lines.

California

• Program: CalSavers
• Employer Coverage: This mandate applies to employers with five or more employees. By December 31, 2025, it will expand to all employers regardless of size. Even a small business with only a handful of staff must enroll unless it already offers a qualified retirement plan.
• Penalties for Non-Compliance: Fines begin at $250 per eligible employee for failing to enroll within 90 days of notification; after 180 days, the penalty increases to $500 per employee. California’s enforcement is proactive, meaning the state will follow up with non-compliant businesses and issue penalties automatically.

Illinois

• Program: Illinois Secure Choice
• Employer Coverage: Employers with five or more employees in business for at least two years must participate. The program is designed to capture new businesses as they grow, but gives time to newly established companies.
• Penalties for Non-Compliance: $250 per employee for the first year, and $500 per employee in each subsequent year of non-compliance. As with other states, these amounts add up quickly for larger businesses, creating a strong financial incentive to comply on time.

Oregon

• Program: OregonSaves
• Employer Coverage: All businesses that do not offer a qualified retirement plan must participate, regardless of size. Oregon was one of the first states to implement this mandate and has already fully rolled out its program.
• Penalties for Non-Compliance: $100 per eligible employee, up to $5,000 annually. The state is actively contacting employers who haven’t enrolled, and enforcement letters are being sent to businesses at risk of fines.

Many other states have similar initiatives in progress or on the horizon. It’s vital to monitor each state’s program for updates. National resources, such as the Betterment Guide to State-Mandated Retirement Plans, provide ongoing updates and detailed breakdowns of requirements nationwide. Other states currently running or planning mandates include New York, Connecticut, Colorado, Virginia, Maryland, and New Jersey, each with varying eligibility requirements, rollout timelines, and penalties.

Benefits of Compliance for Employers

Complying with these state retirement mandates offers more than just penalty avoidance. Enabling employees to save for retirement through payroll deductions can yield several competitive advantages for your business:

• Enhanced Employee Retention: Workers are likelier to stay with companies that demonstrate investment in their long-term well-being. Providing access to retirement plans is a proven way to boost loyalty and lower turnover rates. This translates into significant cost savings over time for employers, as hiring and training new staff is expensive and time-consuming.
• Competitive Edge in Hiring: Competitive benefits, such as retirement savings options, can distinguish your business in a tight labor market and attract top talent. Many job seekers now expect basic retirement benefits as part of an overall compensation package, making non-compliance a potential barrier to hiring the best workers.
• Potential Tax Incentives: Some states and the federal government offer tax credits or deductions to offset costs related to setting up a retirement plan, further reducing the compliance burden. For example, small businesses may qualify for a federal tax credit of up to $5,000 per year for three years for plan setup costs.

In addition to these concrete financial and competitive advantages, businesses that offer retirement plans cultivate a culture of security and stability, which can improve morale and productivity. Employees less worried about their financial futures are more focused and engaged at work. Compliance with these laws isn’t simply a box to check; it’s crucial to building and sustaining a thriving, people-first company.

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Steps to Implement a Retirement Plan

For employers seeking to comply with a state mandate or voluntarily offer a retirement plan, these steps provide a practical roadmap:

1. Assess Requirements: Identify whether your organization falls under a state mandate. Review program websites or consult legal guidance to confirm deadlines and employee eligibility rules. The first step is knowing your obligations to take timely action and avoid fines.
2. Evaluate Plan Types: Decide whether to use the state-sponsored program or adopt a private plan, such as a 401(k). Weigh factors like cost, administrative complexity, and flexibility. Some businesses with specialized needs might find that private plans offer more investment or plan design features than their state’s program.
3. Set Up Payroll Deductions: Coordinate with your payroll provider or HR systems to automate deductions and ensure timely remittance to employee accounts. Most payroll processors are experienced with state-run programs and can help set up the necessary changes with minimal disruption.
4. Educate Employees: Share information about the program, contribution options, and the importance of retirement planning. Well-informed employees are more likely to stay engaged and participate actively. Consider hosting informational meetings, sharing brochures, or directing staff to online resources.
5. Monitor and Review: Regularly confirm ongoing compliance with state mandates, maintain all necessary documentation, and solicit employee feedback to refine your benefits offerings. Creating a schedule for periodic plan reviews can help you stay organized and compliant even as rules evolve.

Resources for Employers

Employers are not alone in navigating these new mandates. Robust resources are available to guide you through the process and answer any questions that arise along the way:

• State Program Websites: Each state with a mandate operates an official program website, offering comprehensive guides, compliance checklists, and contact support. These websites are updated frequently with changes to requirements or deadlines.
• Professional Advisors: Financial advisors, payroll providers, and benefits consultants can provide tailored guidance on plan selection, implementation, and regulatory issues. Seeking expert help can be especially useful for businesses with operations in multiple states or complex payroll needs.
• Industry Associations: Organizations offer up-to-date training, educational materials, and advocacy resources for retirement plan administration. Professional associations can also serve as networking hubs for peers facing similar challenges.

Staying informed about new state-sponsored mandates will help your business comply with evolving laws and demonstrate your commitment to supporting employees’ long-term financial health. Keeping up with changes ensures you are not caught off-guard by new rules or reporting requirements, and it positions your organization as a trusted, forward-thinking employer that values compliance, security, and its workforce’s future.