Are you a manager or owner of a small or medium-sized business that has employees? If so, your company may be required to offer retirement benefits
More and more states are requiring small and medium-sized enterprises (SMEs) in their state to provide their employees with retirement savings opportunities if they haven’t been doing so.
YOUR POSSIBLE CHOICES AS AN EMPLOYER
The requirements to offer retirement benefits under this state-mandated retirement opportunity depend on the state where your SME is located, its size, and how long it has been in business. Regardless of the state, to comply with the state-mandated retirement savings opportunities your small business must either:
Sponsor a retirement plan of its own
Sponsor a retirement plan of its own through an insurance company and comply with the administrative and reporting requirements under state law.
Enroll its employees in the state-sponsored retirement program.
YOUR OBLIGATIONS
Whether your business offers its own retirement savings plan or uses the state-run retirement plan, as a small business employer, you must:
Automatically enroll your employees in a retirement plan.
Only your eligible employees may enroll.
Take out a percentage of each employee’s net salary and contribute it to the employee’s individual retirement account.
This percentage is determined by the state(s) where your business is located.
Not contribute to the employee’s individual retirement account.
EMPLOYEE ELIGIBILITY REQUIREMENTS
Employee eligibility requirements also may vary by state. That’s said, generally state-mandated retirement plans are designed for low income to moderate income employees. In 2022, this included employees whose salary and other revenue after certain adjustments (modified AGI) is as follows:
- Married couples who file their tax return jointly: $214,000 or less per year.
- Employees who are married, did not live with their spouse at any time during the year, and file separately their tax return: $144,000 or less per year.
- Employees who are married and who lived with their spouse at any time during the year, but file separately their tax return: $10,000 or less per year.
- Employees who file their tax return as qualified widow(er): $214,000 or less per year.
- Employees who are single: $144,000 or less per year.
- Employees who file their tax return as head of household: $144,000 or less per year.
Currently more than a dozen states have enacted state-mandated retirement plan legislation. Another dozen have considered enacting legislation. The following states have an active state-sponsored retirement plan in place:
- California
- Connecticut
- Illinois
- Maryland
- Massachusetts
- Oregon
- Washington
News update:
- New Jersey enacted the New Jersey Secure Choice Savings Plan Act and is in the process of scheduling its implementation.
- Le Garden State est en passe d’annoncer quand les PMEs établies sur son territoire et qui remplissent les conditions pourront commencer à y adhérer.
- New York State enacted the New York Secure Choice Savings Plan Act but has not scheduled its implementation yet.
- New York City enacted the Retirement Security for All Act but has not scheduled its implementation yet.
Employees value retirement savings plan. Setting up a company sponsored plan can help improve recruitment and employee retention.
States were compelled to create a self-sufficient retirement savings program for promoting greater retirement savings for private sector employees in a convenient, low-cost, and transferable manner for several reasons:
> The typical working household has virtually no retirement savings. And the National Institute on Retirement Security found that the U.S. retirement savings crisis continues to worsen. In its report, “The Continuing Retirement Savings Crisis”, the Institute determined that nearly 40 million working-age households (45 percent) do not own any retirement account assets: 401(k), IRA. Half of these households with no retirement savings are headed by someone between age 45 and 65 and may have too few years to catch up.
> Employees are more likely to save when they have access to a 401(k) or similar plan that their employer offers.
> Only 4 in 10 businesses with less than 100 employees offer retirement benefits.