The rise of state mandated retirement plans

The rise of state mandated retirement plans

August 10, 2022

There are many things that entice a person to accept a job offer. Maybe the salary is equal or above what they are looking for. Maybe the culture and workplace environment are very inviting and fits their personality. The vision and mission of the organization could align with the ideals that they hold. In many cases, the added benefits that a company offers at sign on add to the allure of the job that they are offering. These benefits could include a good health insurance plan or an employer sponsored retirement plan. For years employers have set up retirement plans as an added value for their employees that they can also, in many cases, deduct from their taxes. This has always been a voluntary choice by employers, but now it appears that states will begin mandating the creation of retirement plans by private businesses.

Recently, the state of Connecticut joined other states in mandating that private/non-governmental businesses with 5 or more employers must either join their state-run retirement savings program or create their own workplace retirement savings program. Such a program could be a 401(k) plan or a Savings Incentives Match Plan for their employees. As was previously mentioned, Connecticut is not the only state requiring this. Connecticut has joined California, Illinois, Massachusetts, Oregon, Washington, and Colorado as the states with legislation passed that mandate employers to start employee retirement savings plans. Why are they doing this?

Research shows that there is a retirement savings gap in this country, meaning that retirees do not have enough saved to supplement their social security and cover their monthly expenses over the life of their retirements. Having an option to save at work, and have the employer match that contribution to some extent, increases the likelihood of an employee choosing to start saving for retirement. Because of this, the implementation of these mandates is seen as a positive for employees. However the prospect of being forced to either create and implement a retirement plan, which adds a new expense to the books, or subscribe to the state sponsored retirement plan, which can be low cost but also less flexible, is daunting to many business owners. This idea is a developing trend as well with 8 other states introducing legislation on this topic. Time will tell whether or not this is implemented in our great state and in the majority of the other 50 states.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.


This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.