SECURE 2.0 vs. State Mandated Retirement Plans: A Quick Guide for Employers
Part of a series | SECURE 2.0 Act Insights
While both SECURE 2.0 and state-mandated plan legislation aim to improve retirement security, they are different in several notable ways. The more employers understand the better they'll be at making more informed decisions for their business — and their people.
SECURE 2.0 legislation has changed retirement planning for small businesses, introducing many new provisions that impact employer-sponsored plans. But it's not the only thing that's been shaking up the retirement planning industry. Several states have begun rolling out mandates requiring many businesses to offer retirement plans to their employees.
While SECURE 2.0 and state mandate legislation share a common goal — to ensure more people have access to retirement benefits — there are key differences that every employer should know.
Breaking down SECURE 2.0
SECURE 2.0 is broad legislation enacted to help American workers save for their retirement through employer-sponsored plans. It introduces over 90 provisions designed to help improve retirement readiness, including:
- An increase in annual catch-up contribution amounts for participants ages 60-63
- An increase in the age for required minimum distributions
- Expedited eligibility for long-term, part-time workers to participate in a plan
- Employer matching for employees' student loan payments within their retirement plans
SECURE 2.0 also incentivizes employers to establish a new retirement plan for their employees. Employers with up to 50 employees may receive a start-up credit covering 100% of administrative expenses (up to $5,000) for the first three years of a new plan. Employers with more than 50 but less than 100 can still receive 50% of their administrative expenses. There's also an additional credit for employers with 100 or fewer employees that would help offset the cost of employer contributions to a retirement plan for up to $1,000 per employee.
Getting up to speed with state retirement plan mandates
Employers are generally not required to offer their employees any retirement benefits. This is where state retirement plan mandates may come into play.
Some states require employers to provide their employees with a retirement savings program commonly referred to as a state-mandated retirement plan.
The mandates only apply to businesses in the specific state. Businesses generally have two ways to comply with these laws — enroll their employees into a state-sponsored retirement program or sponsor a plan through the private market.
Though specifics vary by state, these mandated retirement plans are commonly Roth individual retirement accounts (IRAs). Plans are generally administered through payroll deductions, and employees are automatically enrolled but can opt out or change how much they contribute. Employers themselves are typically prohibited from contributing to the plans.
These "once-size-fits-all" state plans might not necessarily fit a business's specific needs and goals. Employer-sponsored plans commonly provide more flexibility on plan types and features, less administrative burdens, and the ability to set up an employer match — a valuable employee retention tool that also provides employers a tax break.
Closing the retirement savings gap
As an employer, offering a retirement plan of any kind can help improve retirement outcomes and help with employee retention by giving your employees peace of mind that you're invested in their future.
Connect with an ADP retirement planning services specialist to learn more about how our flexible retirement plan solutions compare to the state-mandated plan in your area or call (800) 432-401K .
ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor.
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