State Retirement Plan Mandates

It’s no secret that America is facing a retirement savings crisis. About one-third of adults in the U.S. don’t have a retirement account or pension, according to data published by the Federal Reserve¹. And many of those who do aren’t actively contributing to their accounts. As we discussed in the blog post “The Risk of Relying on Social Security Income for Retirement,” Social Security doesn’t cover average living expenses for many senior citizens, and the Social Security fund is facing budget challenges. So, we’re not being overly dramatic when we say, “America is facing a retirement savings crisis.”

Much of this problem stems from the fact that many small businesses don’t offer retirement plans to their employees. According to data from the Department of Labor², only 59% of employees who work for businesses with fewer than 100 employees have access to a retirement plan through their employer. In defense of small business owners, it has historically been expensive and administratively burdensome to set up and run a retirement plan for a business.

To address this problem, many states have passed laws requiring small business owners to offer retirement plans to their employees or use a state-run program to enroll employees in an IRA (Individual Retirement Account). Businesses that don’t comply may be fined by the state.

The spirit of the state programs is great—the states recognize the retirement savings problem and are stepping up to try to solve it. But as with any large initiative, these programs have presented some challenges for their users. One challenge is that the process of setting up and administering a state program can be burdensome for business owners and the accountants who manage payroll. Depending on the particular state and payroll provider, the payroll administrator may have to log in to the state retirement plan service every pay period to manually enter each employee’s contribution.

Luckily, the states recognize that some employers may want to use other providers and allow business owners to file for an exemption if they offer an employer-sponsored retirement plan. One type of plan that qualifies for the exemption is a 401(k) plan. When many business owners hear “401(k) plan,” they automatically think, “I can’t take on another expense and more administrative work.” We built Crecer to address those concerns. We allow businesses to create and run a 401(k) plan for free, with very little ongoing administrative work.

Check out our State Retirement Plans page to see which states have an active retirement plan requirement and how a Crecer 401(k) plan compares with state retirement plans.