• May 29, 2024
Navigating Compliance – State Mandated Retirement Accounts for Business Owners

Studies show that employees are more inclined to save for state mandated retirement accounts when their employers offer a plan. However, not all small businesses can afford to maintain their plans. 

As a result, some states have introduced programs that require businesses to offer workers a state-facilitated IRA through auto payroll deductions. Many states have mandates that businesses of a specific size offer their employees retirement plans. 

These may be state-sponsored programs or private qualifying plans like 401(k)s. As a small business owner, it is essential to understand your state’s mandates and what you need to do to comply. Payroll complexities involved, and penalties vary by state.

State Mandated Retirement Accounts 

The state-sponsored programs often modeled after the popular 401(k) plan. Furthermore, it typically offers employer-matching contributions and flexible investment menus. 

However, these programs intended to supplement private company-sponsored plans. The idea is to make it easier for workers who don’t have access to a workplace retirement savings plan to build a nest egg.

While encouraging employers to continue offering private plans or adopt new ones. State mandated retirement accounts designed to help low and moderate-income workers save for their futures. 

However, these programs place increased administrative burdens on small businesses, including distributing plan information to employees and processing employee opt-out forms.

Additionally, small business owners will need to set up payroll deductions to send the employee’s contributions directly to the investment company selected by the state. 

Despite the challenges, the benefits of these plans for business owners and their employees are substantial. In addition to helping improve long-term financial security for workers, these programs can boost loyalty and retention. 

While the number of states implementing mandated retirement savings programs is relatively small. However, more than half are considering doing so or implementing related legislation. 

As a result, small business owners need to stay up-to-date on these developments. The requirements vary by state, but most require small businesses not offering a workplace retirement plan to register for the program or demonstrate their participation eligibility. 

Most state programs are automated IRA programs offering Roth-style investments (meaning the money is tax-free). Others use traditional IRAs in which employees can make pretax contributions. Registration deadlines vary by state.

Required Reporting

A common concern for small business owners is balancing the costs and complexity of running a retirement plan with meeting regulatory requirements. 

That’s why many states have passed legislation requiring certain companies to offer retirement accounts or facilitate enrollment into state-sponsored plans. There are various programs available that offer different types of savings. 

However, most are auto-IRAs designed to resemble either traditional or Roth individual retirement accounts. In the case of Roth IRAs, the account is funded with post-tax money, which means that when an employee retires, they can withdraw the money without paying any tax.

On the other hand, traditional IRAs are funded with pretax money, and upon retirement, the withdrawals will be taxed as income. The registration process typically involves submitting payroll reports and forms to the state. 

In some cases, businesses that don’t register may be subject to penalties and investigations. Keeping up with the changing regulations in multiple states is difficult, so it’s best to leave this task to a financial professional.


In recent years, states across the country have been introducing programs designed to bridge the retirement savings gap. Moreover, for workers who don’t have access to employer-sponsored plans

Known as auto-IRA programs, these initiatives require businesses that don’t offer their plan to enroll eligible employees in a state-facilitated account. While these programs vary by state, they generally have several standard features. 

Regardless of how your state’s program works, meeting compliance deadlines is vital. Failure to comply can result in fines and the loss of funds. Keeping up with state regulations is a time-consuming task for small business owners. 

It’s much easier to outsource your compliance needs to a team of professionals familiar with these laws and requirements. This is an essential step in ensuring your business stays on the right side of the law and keeps up with new regulations as they are introduced.


As a business owner, it’s essential to be aware that several states are taking steps to close the retirement savings gap by mandating small businesses. Consequently, to offer or facilitate participation in state-facilitated plans. 

However, these programs can be complicated and require significant administrative effort. For example, they require you to select and manage a provider for your employees’ contributions and perform filings.

Furthermore, reporting, adjusting contribution limits as required, and providing employee education. You also need to understand the potential penalties associated with noncompliance. 

Depending on the program, some states have registration or opt-out deadlines for employers. Many business owners are reluctant to implement or participate in a state-facilitated retirement program.

It will likely add additional responsibilities and expenses to their operations. However, a knowledgeable retirement plan expert can help you navigate these new requirements and find the solution that fits your business needs. 

As your trusted advisor, we can inform you of the latest changes, help you find the right plan, and ensure all the paperwork is filed correctly and submitted.


What are the four retirement accounts?

  • Traditional IRAs.
  • Roth IRAs.
  • Simplified Employee Pension (SEP) IRAs.
  • Savings Incentive Match Plan for Employees (SIMPLE) IRAs.

What is the Virginia state mandated retirement plan?

RetirePath VA is a Roth IRA where employees contribute through post-tax payroll deductions processed automatically by their employer.

What is the difference between an IRA and a 401 K )?

401(k)s are employer-offered, while IRAs are individually opened through a broker or bank.

For more information, visit cosmosmagazines.com

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