Navigating State-Mandated Retirement Plans and Exploring Alternatives for Your Business

In recent years, the landscape of employer-sponsored retirement plans has been evolving. Traditionally, offering retirement plans has been voluntary for employers, but more states are passing legislation that mandates businesses provide these benefits to their employees. With no federal law requiring retirement plans, an increasing number of states are stepping in to bridge the gap, ensuring that more workers have access to retirement savings options.

Though only 16 states have fully implemented these mandates, the movement is gaining traction. Over the past decade, 47 states have made strides toward adopting mandated retirement programs or have introduced related legislation, according to Georgetown University’s McCourt School of Public Policy Center for Retirement Initiatives (CRI).

As these mandates expand, it’s crucial for business owners to understand how these new rules may affect them and what steps are needed to comply. More importantly, businesses may have other options that could provide greater flexibility and benefits for both employers and employees.

What Are State-Mandated Retirement Plans?

State-mandated retirement plans are programs required by state law that provide private-sector employees with the ability to save for retirement, especially those who don’t have access to an employer-sponsored plan. These plans are designed to make it easier for small businesses to help their employees secure a financial future.

Most states that have implemented these mandates use auto-IRA programs, which automatically enroll employees into a state-managed Roth Individual Retirement Account (IRA). Employees can then contribute a portion of their paycheck to the account.

The goal is simple: increase retirement savings for workers who may not otherwise have access to an employer-sponsored plan. While employee participation is usually voluntary, employers are required to enroll their workers if they don’t already provide a retirement plan. However, state-mandated plans aren’t the only option available, and they may not always be the most beneficial for every business.

Can an IUL Be an Alternative for Employers?

If you’re looking for a more flexible, tax-advantaged option, consider offering an Indexed Universal Life (IUL) insurance policy as part of your employee retirement benefits. At King Legacy Group, we specialize in IULs, which offer unique advantages over traditional retirement plans, including:

• Tax-Free Growth and Withdrawals: The cash value of an IUL grows tax-deferred, meaning employees won’t pay taxes on the growth until they access the funds. When properly structured, they can access this cash tax-free, providing a powerful income stream in retirement without the tax burden that often accompanies traditional IRAs or 401(k) plans.
• No Penalties for Early Withdrawals: Unlike retirement accounts that impose penalties for early withdrawals, IULs offer the flexibility to access funds when needed, without hefty fines. Whether it’s an emergency or a financial opportunity, employees have peace of mind knowing they can tap into their policy’s cash value without penalty.
• Living Benefits: An IUL provides additional benefits beyond retirement income. Employees can access the policy’s value to cover long-term care, critical illness expenses, or other medical needs while they’re still alive.
• Liquidity and Flexibility: One of the most attractive features of IULs is their liquidity. Unlike 401(k)s or IRAs, which can be restrictive, IULs offer the freedom to access cash value throughout an employee’s life. This means that employees can borrow against their policy’s cash value or make withdrawals as needed, without penalties or taxes, to address any number of financial needs.

If you’re considering an alternative to traditional, qualified retirement plans, an IUL can be a flexible, tax-advantaged solution for your business and employees. Reach out to King Legacy Group to explore how we can design a plan that meets your unique needs. Schedule a complimentary consultation here.

The Cost of Non-Compliance with State-Mandated Plans

If you operate in a state that mandates retirement plans, non-compliance can result in significant penalties. For example, in California, businesses with five or more employees must enroll in the CalSavers program if they do not offer their own retirement plan. Failure to do so can lead to fines of $250 per eligible employee, and if the non-compliance continues after 180 days, the fine increases to $500 per employee.

Every state has different guidelines and timelines for compliance, so it’s important to research the specific requirements in your area.

Why Are States Adopting These Plans?

The growing number of state-mandated retirement plans is largely driven by a national retirement savings crisis. According to a Federal Reserve report, one in four Americans has no retirement savings. Additionally, the Employee Benefit Research Institute (EBRI) found that the U.S. retirement savings shortfall for households aged 35 to 64 is a staggering $3.68 trillion.

State-mandated plans aim to address these statistics by making it easier for employees to save. Oregon was the first state to roll out its program, OregonSaves, in 2017. California and Illinois followed shortly after with their own plans.

Which States Have Mandated Retirement Plans?

As of 2024, the following states have implemented state-mandated retirement plans:

• California: Businesses with five or more employees must offer CalSavers or their own plan by the end of 2025.
• Colorado: Employers with five or more employees must participate in Colorado SecureSavings if they do not offer a plan.
• Connecticut: MyCTSavings applies to businesses with five or more employees and $5,000 in wages.
• Delaware: By 2025, businesses with five or more employees must enroll in DE EARNS or provide an alternative plan.
• Illinois: Employers with five or more employees must offer Illinois Secure Choice or an alternative plan.
• Maryland: MarylandSaves applies to most businesses, with requirements depending on size.
• New York: The New York State Secure Choice Savings Program is under development.
• Nevada: Businesses with five or more employees must comply with the Nevada Employee Savings Trust by July 2025.

These are just a few examples, and more states are exploring or implementing similar programs.

Choosing Between State-Mandated Plans and Private Options

If your business operates in a state with mandated retirement plans, you’ll need to decide whether to opt for the state-run program or explore private options. While state programs are convenient, they often have limited contribution amounts and fewer investment choices. For instance, most state plans are Roth IRAs, which have a contribution cap of $7,000 per year in 2024 ($8,000 for those 50 and older). Additionally, state plans may not allow employer matching, reducing their attractiveness for businesses looking to offer robust benefits.

On the other hand, private plans like an IUL offer higher contribution limits, employer matching, and flexible investment options, making them a more versatile solution for businesses that want to provide comprehensive retirement benefits. Moreover, private plans offer greater tax advantages, both for the employer and the employee.

If you’re unsure which option is best for your business, contact King Legacy Group for a complimentary consultation, here. We can help you navigate the various options and choose the best solution for your business and employees.

Conclusion: Explore Your Options with King Legacy Group

At King Legacy Group, we believe in offering personalized financial solutions that meet the needs of both businesses and employees. Whether you’re looking to comply with state-mandated retirement plans or explore the benefits of a tax-efficient IUL, our team is here to guide you through the process. We specialize in helping businesses create tailored financial strategies that provide long-term security and growth for employees, while offering the flexibility and control that business owners need.

Contact us today to learn more about state-mandated plans and explore the possibilities of offering IUL retirement options for your employees. You can schedule a complimentary consultation here.