For small businesses in the 10states with retirement legislation, now is the time to understandthe program and prepare for it.


There is a retirement savings crisis in America.


According to a recent Go Banking Rates survey, 58 percent ofAmericans have less than $1,000 in their savings account, and theNational Institute on Retirement Security(NIRS) found that 57 percent of working-age households have noretirement assets. And of those that do, only half are adequately prepared for a comfortableretirement.


The AARP found that people are more likely to save if theiremployer offers a 401(k) or some type of retirement savingsprogram. While most large businesses do offer 401(k) programsalready, small businesses are less likely to participate, often dueto cost.


Related: Embrace small plans before it's toolate


To reduce barriers to entry, many states are creating free orlow-cost savings programs for small businesses to offer theiremployees.


Here's what you need to know for 2020.

Which states are rolling out plans?

Currently, 28 states are working on creating state-sponsoredretirement programs. These programs are in different stages ofdevelopment, but 10 states: California, Connecticut, Illinois,Maryland, Massachusetts, New Jersey, New York, Oregon, Vermont, andWashington, have passed legislation.


Note: Some states are making enrollingoptional, not mandatory. In other words, you have to enroll in aplan, not their plan.

Most plans are free for employers but have high fees foremployees

Even though the aim of these programs was to increase access toaffordable retirement savings opportunities, a lot of these plansend up being expensive when you consider fee structures.

Most plans are ROTH IRAs not 401(k)s

A lot of people refer to the plans as 401(k)s but this isn'tnecessarily true. Most are actually Roth IRAs, which have adifferent set of things to contrast from a competitor offeringanother 401(k):

  • 401(k)s are pre-tax vs. Roth IRAs are post-tax
  • 401(k)s have a higher annual contribution limit vs. RothIRAs

Here's a quick breakdown of the models some states aredeploying:

Type of planStates using this modelCompared to a 401(k)
Roth IRACA, IL, NY, ORLower annual contribution limit, contribution restrictionsbased on income.
Multiple Employer Plan (MEP)MALess control over plan design, higher potential for abuse.
MarketplaceWADoesn't directly offer retirement plans or list your options(or their pros and cons).


They may offer your organization a one-size-fits-allsolution

Limited flexibility in the plans and investment options givesorganizations less control over the details of their retirementsavings plans.

What does this mean for small businesses?

For small businesses in the 10 states with retirementlegislation, now is the time to understand the program and preparefor it. While using the state-sponsored plans is not mandatory,businesses do have to offer some kind of 401(k) retirement plan.Many of the start dates are still in the

The bottom line

Many of these retirement plan mandates are still a ways off, butit is important for businesses to start planning early. For thosebusinesses that do not reside in one of the 28 states looking tocreate these mandates, it is still beneficial for recruitment,retention, and your employees' overall well-being to offer sometype of retirement program.


While the state programs that are available are free, they donot offer the flexibility or control many people are looking forwith their retirement savings. Many of these programs require aminimum contribution percentage, as well as low maximum yearlytotal contributions. Additionally, government-mandated plans rarelyhave the technology and innovation today's employees are accustomedto in their financial tools – offering an intuitive, easy to useretirement plan is a critical part of setting employees up forfuture success.


We recommend that you consider finding a low-cost,easy-to-administer 401(k) plan to meet your state's requirements,while also providing the best possible savings offering for youremployees.


Diana Torzewski ismanager of customer success at Human Interest.

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