State of the states 2024: Keeping up with state-sponsored retirement programs

From the employer perspective

State-sponsored retirement savings programs are state-run programs pursuant to enabling state legislation that typically set up automatic 401(k) or Individual Retirement Accounts (“IRA”) accounts for employees of small employers that don’t already have their own employer-sponsored plan. These programs are essentially retirement savings plans established by the states that require qualifying employers to offer them as an option to their workers to increase participation and to accumulate retirement savings.

These programs can take different forms, including:

• Retirement marketplaces, where employers and individuals can purchase a savings plan through different state-approved providers.
• Multiple-employer plans, where unrelated businesses may jointly sponsor a 401(k) plan.
• Payroll deduction 401(k) or IRAs, where employers deduct a portion of pay from an employee’s paycheck and deposit it into the employee’s own IRA (often on an after-tax or “Roth” basis).

For employers without a retirement savings plan as part of their employee benefits offering, these programs can help fill that gap without taking on the financial and fiduciary responsibilities of sponsoring a 401(k) or similar “qualified” retirement savings plan. However, each state-sponsored program comes with its own implementation date and administrative requirements that employers – especially multi-state employers – should learn and monitor going forward.

Current state of play

Since 2012, at least 48 states and the District of Columbia have acted to implement a new program, study program options, or consider legislation to establish state-sponsored or state-facilitated retirement savings programs.

Since 2015, at least one or two states each year have enacted new state-facilitated retirement savings programs. During the 2023 state legislative sessions, at least 25 states and the District of Columbia introduced legislation to establish new programs, amend existing programs, or form study groups to explore their options. Three new auto-IRA programs were enacted in 2023 – Minnesota, Nevada, and Vermont and one new Multiple Employer Plan (MEP) in Missouri. Vermont changed its existing program from a voluntary MEP to an auto-IRA program.

As of the latest count, there are 19 states that have enacted new programs for private sector workers (and 2 cities (for a total of 21 programs), although the cities will not move forward to implement due to state legal and program actions) and 16 of these states are auto-IRA program states.

As of March 31, 2024, the following states have enacted new programs or amended existing programs:

• Washington enacted the new Washington Saves Program, intended as a new auto-IRA program. Because WA already has a marketplace, the new program does not increase the number of states with programs.
• New York enacted program amendments to allow freelancers and independent contractors the ability to voluntarily join the state program.
• Vermont enacted program amendments to provide administrative discretion for the timing of employer participation and set a launch for no later than July 1, 2026.

During the remainder of the 2024 state legislative sessions, several states are expected to introduce or continue to advance bills to establish or amend existing state-sponsored retirement savings programs.

Lessons from the early states

The lessons from older auto-IRA programs (i.e., OR, IL, and CA) suggest that state programs can shorten their timelines for onboarding employers and their workforces. Also, the creation of new inter-state partnerships supports shorter launch and onboarding timelines, as illustrated by the more recent launch of Maine’s MERIT program.

• Oregon: OregonSaves opened to employers in 2017, and it is currently completing the onboarding of the smallest employers (those with 4 or fewer employees). The registration deadline for businesses with at least one employee was July 31, 2023. The registration deadline for newly eligible employers is July 31, 2024.
• Illinois: Illinois Secure Choice rolled out three of its five waves of eligible employer registrations between 2018 and 2019, but two new waves of smaller employers were authorized to be added in 2021 (the program expanded the number of employers covered by law from those with 25 or more employees to those with 5 or more employees). The fourth wave (16-24 employees) was completed in November 2022, and the registration deadline for the fifth wave (5-15 employees) was November 1, 2023.
• California: CalSavers opened to all eligible employers in July 2019. Employers with 5 or more employees that have not received a notice to register in past years must register by December 31, 2023. Eligible employers with 1-4 employees should register by December 31, 2025.

States in implementation phase

Programs in Hawaii, Minnesota, Missouri, Nevada, New York, and Vermont are still developing and finalizing implementation timelines. The New Mexico Retirement Plan Marketplace and the New Mexico Work and $ave IRA Program has a July 1, 2024 implementation deadline, but the timeline for actual program implementation remains undetermined.

It is important to note that any employer can register to participate in a state program at any time and does not have to wait for their enrollment wave or phase to do so. The deadline serves as a comply by date.

Other state programs

Although not in the majority of states from a program design perspective in terms of using an auto-401(k)/IRA model, the Massachusetts’ CORE MEP opened for enrollment in October 2017, and the Washington State Retirement Marketplace opened in March 2018.

State partnerships

The first state partnerships were forged in 2023. The Colorado Partnership for a Dignified Retirement (Colorado SecureSavings Program) entered into inter-state agreements with two program states in 2023, namely Maine and Delaware. In 2021, Colorado and New Mexico signed a first-in-the-country Memorandum of Cooperation (MoC) to pursue a formalized partnership agreement for their auto-enroll IRA programs. (The partnership is currently on hold pending additional potential modifications to the design of the New Mexico state program.)

Federal action

While states continue to study various options and/or develop their specific programs, Congress and the Federal agencies have also examined auto IRAs and other models as part of the larger conversation around retirement savings and tax policy. Leaving aside the potential jurisdictional question including the significant ERISA preemption issue, the attention by lawmakers in Washington only serves to highlight the importance of retirement savings as a national priority.

Bottom line

Employers should continue to monitor the legislative and regulatory developments around these state-sponsored retirement programs in the states that they operate in, both from a legal compliance perspective as well as an HR employee benefits lens.