Mandated Retirement Funds: What It Means for Your Business

Retirement planning plays a crucial role in both supporting your employees' financial futures and keeping your business compliant with evolving state regulations. As more states begin to require employers to provide retirement savings options, small and medium-sized businesses face new responsibilities. Understanding what mandated retirement funds are, the types of plans available, and how to meet these requirements is essential to maintaining a competitive edge and staying legally compliant.

What Are Mandated Retirement Funds? 

Mandated retirement funds are state-required retirement savings plans that employers must offer to their employees. These requirements have arisen in response to the growing retirement savings gap in the United States. By mandating access to retirement plans, states are encouraging more individuals to save for their future. 

Currently, around ten states have implemented mandated retirement programs, and it’s expected that by the end of 2025, this number will increase significantly. Over time, most states are likely to require employers to offer some kind of retirement plan. 

Types of Mandated Retirement Plans 

Businesses have a few options when it comes to retirement plans, both mandated and voluntary: 

• 401(k) Plans: These are common employer-sponsored retirement plans, where employees defer part of their salary into a fund that can be invested. Employers often work with fund providers like John Hancock to establish and manage these plans, which may include pre-tax (401(k)) or post-tax (Roth 401(k)) contributions. 

• State-Sponsored Roth IRAs: In states with mandated retirement plans, employers that do not already offer their own qualified retirement plan must enroll in a state-sponsored Roth IRA program. These plans are similar to individual Roth IRAs and are run by the state. Contributions are made with after-tax income, and the plan is portable, meaning employees can take their savings with them even if they switch jobs. 

Compliance Requirements for Employers 

To comply with state mandates, employers need to register with the relevant state retirement program and enroll their employees. Compliance requirements can vary by state, but generally, all employers need to do is facilitate payroll deductions and ensure contributions are transferred to the designated program. 

For businesses that choose to offer their own 401(k) or Simple IRA plans, there are additional compliance considerations such as fiduciary responsibilities, audits, and sometimes third-party administration costs. 

Consequences of Non-Compliance 

Failing to offer a mandated retirement plan to employees can lead to financial penalties. The exact fines vary depending on the state, but generally, businesses that do not comply with these requirements within a given timeframe will incur fines ranging from $250 to $500 per eligible employee. Staying proactive about compliance will help you avoid these fines and ensure your employees have access to the benefits they deserve. 

Choosing Between a State-Sponsored Plan and a Private Retirement Plan 

Employers have options when deciding how to fulfill these retirement requirements. The best plan for your company depends on several factors, including the size of your workforce and the level of contributions you want to make. 

• State-Sponsored Plans: They’re easy to set up and manage, with limited compliance requirements. They are an ideal option for smaller businesses with high turnover, such as restaurants, as they require minimal employer involvement and are portable for employees. 

• 401(k) Plans: They have higher contribution limits and allow employers to offer matching contributions, making them a more attractive option for companies with stable workforces looking to provide more robust benefits. However, they come with additional responsibilities, such as compliance audits and fiduciary duties, which can be costly and require more administrative work. 

How Can YPD Help with Retirement Plan Management? 

At YPD, we understand that choosing the right retirement plan can be overwhelming, especially with the different compliance requirements and options available. Our goal is to provide payroll services that are compatible with any type of retirement plan you choose. We work with state-sponsored plans, 401(k) providers like John Hancock, and others, ensuring that your payroll contributions are seamlessly managed and secure. 

Our payroll software, isolved, is designed to handle a wide range of retirement contributions, from state-sponsored Roth IRAs to employer-sponsored 401(k) plans. This integration helps eliminate the hassle of managing compliance and streamlines the process of funding your employees' retirement accounts. 

Advantages of Offering Retirement Benefits 

Providing retirement benefits isn’t just about compliance—it also brings significant advantages for both you and your employees: 

• Attract and Retain Talent: Employees today are looking for jobs that provide financial security, and having a retirement plan as part of your benefits package can make your business more attractive. 

• Employee Financial Wellness: Offering retirement benefits shows that you care about your employees' long-term well-being, which can boost morale and increase productivity. 

• Tax Incentives: Employers who set up their own retirement plans may qualify for tax incentives that help offset the costs associated with offering these benefits. 

Simplify Compliance with Kaizen CPAs and YPD

Complying with mandated retirement fund requirements doesn’t have to be complex or burdensome. Whether you're looking to comply with state regulations by enrolling in a Roth IRA or you’re interested in setting up a more comprehensive 401(k) plan, Kaizen CPAs and YPD can guide you every step of the way. 

If you need help deciding which retirement plan is best for your business or navigating compliance requirements, reach out by clicking the 'Let's Chat' button —our team is here to help you make informed decisions and ensure your employees' futures are secure.