A Handy Guide to State-Sponsored Retirement Programs
Individual states are stepping up to tackle the retirement crisis by rolling out retirement savings programs. The rules of these state mandated programs vary greatly from state to state, but they could help bridge the retirement gap for as many as 41 million U.S. workers who currently don’t have access to an employer-sponsored plan.
Some states have hard deadlines approaching in 2022, including California, Illinois, and Oregon. California, for example, requires any companies with at least five eligible employees to offer a plan by June 30, 2022. The state also announced penalties for companies with more than 100 employees that are not offering a private retirement plan or have not registered for CalSavers.
As your business looks to stay compliant and offer a competitive benefits package, state programs are one solution. Small businesses can also comply with state mandates by starting a new 401(k) plan with Guideline, which is fully integrated with Gusto’s payroll. It’s straightforward to get started and employers may be eligible for startup tax credits.
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Team ManagementTax credits for small business retirement plans
Under the SECURE Act, the tax credit available to small businesses starting new 401(k) plans increased from $500 per year up to $5,000. The credit is available for the first three years to help with 401(k) administrative costs, and depends partly on how many non-highly compensated employees are eligible for the plan.
The SECURE Act also created a new tax credit of up to $500 per year to employers who start 401(k) plans that automatically enroll employees. Like the expanded new plan credit, this tax credit is available for three years, for a maximum credit of $1,500.
The credit is also available to employers that convert an existing plan to an automatic enrollment design. This means the new maximum eligible tax credit for offering a new 401(k) is now $5,500 for up to three years, or $16,500 in total.
Curious about how much your tax credit might be? You can estimate your total credit by answering a few questions in Guideline’s tax savings calculator.
Active and pending state-sponsored retirement plans
Outlined below are the active and pending state-sponsored programs, their current state, and upcoming deadlines. Employers that currently offer a qualified plan are not subject to the requirements. Please note: Employees must reside within the state sponsoring the program in order to participate unless otherwise noted.
This post is an excerpt of our 401(k) partner Guideline’s state mandate tracker, which will be updated as state-sponsored plans develop.
1 The retirement gap of 41 million US workers is an approximation calculated from 32% of 127 million full time private workers who lack access to retirement benefits through their employer (based on data points sourced from the U.S. Bureau of Labor Statistics and Statisa.com in March 2022).2 You should consult a qualified financial adviser or tax professional to verify that you are meeting the applicable state program requirements. Employer requirements to report your exemption may apply. Employee requirements may also apply and vary between states. State program details are subject to change by the state without notice and should be checked prior to making any decisions.
3 This content is for informational purposes only and is not intended to be construed as tax advice. You should consult a tax professional to determine what types of tax credits or deductions your company is eligible to claim.
4 Compare CalSavers to Guideline 401(k).
5 Applies to nonprofit organizations with 20 or fewer employees.
6 Applies to both non- and for-profit businesses with 25 or more employees that have been in business for at least two years.
