Hawaii’s Act 296, or the Hawaii Retirement Savings Act, is the state law that established the Hawaii Retirement Savings Program for private-sector employees. While it was enacted in July 2022, it hasn’t been implemented yet.
Considering the typical cost of living for the state, the program probably can’t come soon enough for state residents. Why? It’s the least affordable state for Americans to retire in. Plus, 25% of Hawaii’s population will be 65 by 2035.
How much money does someone need to save to retire in the state of Hawaii? A whopping $2.21 million! That’s just to cover the typical cost of living. Housing, groceries, transportation, utilities, and health care for 25 years were all calculated to get that total amount.
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What is the Hawaii Retirement Savings Program?
When employers in Hawaii can’t provide an employer-sponsored, qualified retirement plan, the Hawaii Retirement Savings Program has been greenlit as an alternative, state-sponsored option. Employers will have no fiduciary responsibility, and it will be administered by the Hawaii Retirement Savings Board, along with the involvement of the Department of Labor and Industrial Relations to handle appropriated funds.
How will the Hawaii Retirement Savings Program work?
Here is the latest on this program, including how it has evolved and where it stands since its start:
- Retirement contributions will be deducted from payroll.
- Employers can’t contribute in any way to the employees’ retirement accounts.
- The preliminary program details say that employees won’t be automatically enrolled and can opt out. But if an amendment that passed the state Senate on April 1, 2025, becomes law, it would turn the program into an auto IRA. Other states have had successful results automatically enrolling employees.
- Hawaii created a special fund to match contributions up to $500. However, this incentive that was included in the original law was only for the first 50,000 covered employees to participate in it for 12 months straight, and the funds have since lapsed. It’s currently not clear if the Board will request these funds again for the program in the future.
Eligibility requirements for employees
So far, the requirements for employee participation include that they be …
- At least age 18
- A Hawaii resident
- Receive wages subject to income tax from a covered employer
- Eligible for a Roth IRA. For instance, if an employee’s modified adjusted gross income (MAGI) in 2025 is too high (i.e., at least $150,000 when they’re single tax filers or at least $236,000 when they’re filing joint taxes), then their Roth IRA contributions may be limited or they won’t be able to contribute at all.
Enrollment and contribution options for employees
The Board is still sorting out plan specifics, so a timeline hasn’t been disclosed for when it will be rolled out. This is where contribution options currently stand:
- The individual retirement account type will be a Roth IRA for after-tax contributions, although the board could also add a traditional IRA as an option. Earnings with Roth IRAs are tax-free when it’s time to take withdrawals at retirement, as long as the individual is at least 59½, and the Roth IRA is no less than five years old.
- The default contribution amount will be 5% of gross pay, but employees can select to contribute more or less based on maximum limits determined by the Internal Revenue Service (IRS).
- Information on investment options hasn’t been shared yet.
What employers need to know about the Hawaii Retirement Savings Program
Eligibility requirements and deadlines for employers
Without an active program, there are no registration deadlines at this time. Currently, the program defines eligible or covered employers as those with businesses in Hawaii with at least one employee. They also can’t have had a qualified retirement savings plan (meeting the federal government’s Internal Revenue Code requirements) for the last two years, such as these:
- 401(k) plan or other 401(a) plan
- 403(a)—qualified annuity plan
- 403(b)—tax-sheltered annuity plan
- 408(k)—Simplified Employee Pension (SEP) plan
- 408(p)—Savings Incentive Match Plan for Employees (SIMPLE) plan
It isn’t available for self-employed workers, but the state law left the door open to evaluate the feasibility of whether the plan can be expanded to include them.
Employer responsibilities with the Hawaii Retirement Savings Program
The law outlines some employer responsibilities:
- Businesses will need to notify employees with a written notice.
- Withhold deductions from paychecks.
- Submit employee contributions no later than the 15th of the calendar month after the deductions were taken from their wages.
However, since the state program is still in development, this list could be expanded or modified in the future. For example, if the amendment to the Hawaii Retirement Savings Act that just passed Hawaii’s Senate does become law, businesses will need to send written notices to employees about the automatic enrollment and how they will need to opt out if they don’t want to participate. That is the newly proposed retirement plan design, as opposed to notifying employees to opt in, which is how the Hawaii Retirement Savings Act currently outlines the retirement program, unless it is amended.
Non-compliance penalties
The penalties if an eligible employer doesn’t follow the requirements are described in the Act and cover:
- Civil actions to recover costs and reasonable legal expenses
- Contribution amounts, plus a 6% interest rate
- $25 for each month not enrolled, and $50 per month if still unenrolled after the determination that a penalty should be applied
- The same goes for when an employee’s payroll deductions for contributions weren’t transmitted in a timely fashion, unless the employer can prove that they exercised reasonable due diligence to comply with the requirements. Once employers are made aware of failures, they have a grace period of 90 days to remedy them.
- The fines for not complying with the provisions and rules can range from $500 to $5,000.
Benefits of the Hawaii Retirement Savings Program
Large employers have a lot of resources at their disposal to recruit and retain skilled talent, so small employers need support to attract and keep strong experience and expertise. One way is through benefits, and a retirement program is a smart addition to a benefits package. But when a small business doesn’t have an employer-sponsored retirement plan to offer, a state-facilitated retirement savings program can fill the need.
In fact, employees who receive retirement benefits from employers on Gusto’s platform, on average, are 40% less likely to leave those businesses within their first year of working for them. For employees working in retail, food and beverage, or other personal services, that rate actually increases to 54%. A Gusto analysis of state auto-IRAs also found that there was a 55% increase in retirement savings for median earners and below.
So the availability of retirement programs through companies, whether they’re an employer-sponsored plan or whether they’re a state-sponsored one, such as the Hawaii Retirement Savings Program, benefits both businesses and employees.
Do businesses have to use the Hawaii Retirement Savings Program?
Eventually, but that timeline hasn’t been determined. Employers with at least one employee who meets the rest of the eligibility criteria will need to register for the Hawaii Retirement Savings Program after it launches, once all the guidelines, investment options, and operations have been finalized for it.
Retirement benefits made easy with Gusto
You don’t have to wait until the Hawaii Retirement Savings Program is active and available to consider providing a plan for your employees. Gusto can help you explore what’s involved with a 401(k) plan.
Colorado and Oregon, which have auto-IRA mandates, have seen an increase in 401(k) adoption amongst the smallest employers in those states, including those with at least five employees and those with one to four employees, respectively. Here are some advantages that are associated with offering a 401(k):
- Reduced cost with tax credits: Eligible businesses may be able to claim up to $16,500 in tax credits for the first 3 years of their 401(k)—potentially covering 100% of plan costs.
- Flexible and affordable plan options: Gusto’s growing list of 401(k) partners means plenty of plans to choose from at low price points to fit your budget.
- Integrated to make life easier: Gusto payroll syncs with your 401(k) plan to make automatic deductions. Employees manage their own Gusto accounts, with access to their pay stubs, W-2s, 401(k) accounts, and contribution details.
- Great employee benefits help you build a great team: Because 401(k) plans have higher contribution limits, employees can save more money with an employer-sponsored 401(k) than with state-mandated IRAs. Gusto’s own analysis has even found that employer-sponsored 401(k) offerings increase employee retention.
Not sure which choice is right for your business? This table compares the features of a 401(k) and what’s currently known about the Hawaii Retirement Savings Program:
| Features | 401(k) | Hawaii Retirement Savings Program |
| Auto-enroll | Available | 5% |
| Auto-escalation | Available | To be determined (TBD) |
| Payroll integration | Available | TBD |
| Investment options | Large range of funds that varies based on the provider | TBD |
| Employer matching and profit-sharing contributions | Available | No |
| Investment advice | Available | No |
| Taxability | Pre-tax and after-tax contributions available | Roth after-tax contributions |
| Annual contribution limit | $23,000 for employees ($30,500 for those 50 and older), plus optional employer contributions | $7,000 for employees ($8,000 for those 50 and over) |
| Participant fees | Varies, but often ranges between 0.5% and 2% of the plan balance annually | TBD |
If you have an existing Gusto account, learn more about our 401(k) partners here.
Or create an account with Gusto to enroll in a 401(k) plan. Gusto’s platform makes that simple.
