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Which States Mandate Retirement Plans for Small Businesses?

June 19th, 2023 | 7 min. read

By Bret Asmussen

It’s always been rare for small businesses to offer employee retirement plans - and with a limited budget, it’s no wonder why. However, with more and more states mandating retirement plans for any business that has employees, they’re about to become the norm.

Don’t worry about your budget quite yet - you are not required to contribute or match - but this gives your employees the option to start building up their own retirement funds, and happy employees are assets to your business.

At CSI Accounting & Payroll, we’ve worked with thousands of small business owners. That means we know about common questions and concerns surrounding offering employee benefits, especially when certain laws are passed. 

When it comes to retirement plans, small business owners want to know:

  • Which states require retirement plans?
  • What do I need to know about MarylandSaves and Minnesota’s status?
  • What happens if I’m supposed to offer a retirement plan, but I don’t?
  • Why should I get retirement plans now, even if I don’t have to yet?

Blog - Which States Mandate Retirement Plans for Small Businesses

States Requiring Small Business Retirement Plans

There’s a huge trend right now of states that are introducing or passing legislation about mandating small businesses to offer retirement plans if they have any employees.

Note: Due to how quickly legislation is moving, this list is likely to be out of date. You should expect that your state may pass a similar law, but please do your own research for the most timely information.

States with active retirement plan laws include:

  • California
  • Colorado
  • Connecticut
  • Illinois
  • Maryland
  • Massachusetts
  • Oregon
  • Virginia
  • Washington

There are many other states that have passed or suggested legislation. Learn more about state statuses and requirements here.

What Minnesota & Maryland Clients Need to Know About Minnesota Legislation & MarylandSaves

Why are we discussing Minnesota and Maryland, specifically? While we work with clients all over the continental United States, we have two physical office locations in Minnesota and Maryland.

Minnesota Legislation

Minnesota is a short answer; legislation was recently signed, but details are still pending. We don’t know about the timing, employer size this will impact, and what (if any) penalties will be assessed if not compliant yet.

Maryland’s Legislation & MarylandSaves

Maryland has MarylandSaves available now (since last September), but the mandate won’t take effect until this August. You must offer retirement savings if you’ve been in operation for at least 2 calendar years, have at least one W-2 employee, and use an automated payroll system.

The state is requiring Individual Retirement Accounts (Auto-IRAs), but the penalties aren’t established yet. If you offer a qualified plan already, you can claim an annual report fee waiver ($300 value). 

The MarylandSaves website claims, “Unlike the alternatives, MarylandSaves won’t charge you a dime – and your employees will get both emergency and retirement savings.” There are also no employer contributions.

MarylandSaves is designed to be easy for you. If you have any questions, check out the official program’s employer FAQ page.

Consequences of Not Getting a Mandated Retirement Plan

The consequence of not setting up a qualified plan on time is that the government will set one up for you. This might not sound like a bad thing, but it removes the choice that you have for now.

With a state-mandated retirement plan, you can’t choose which company you want to work with. There is also usually a limited selection in the types of plans offered, including no pre-tax options. Plus, you clearly can’t choose to work with your advisor if you have one in mind.

If you want different choices for your employees or yourself, you may want to shop around ahead of time instead of waiting for your state to assign you a plan.

Why You Should Act Now

If it can take years to enforce these new laws, why should you act now? What’s the harm in waiting besides getting assigned a government plan? While there may not necessarily be any harm (details are still pending in many states), there are some benefits to acting now. 

Since very few small businesses offer retirement plans, you can get ahead of the curve to set yourself apart. This helps you attract and retain the best talent. Learn more about the benefits of offering retirement plans and how payroll services can manage them here.

The plans are also really simple to set up if you sign up with the state or work with an outsourced payroll company. The cherry on top is that with many credits available, such as the one offered through the SECURE Act 2.0, your costs will be offset.

Beat the Deadline: Get a Retirement Plan Now!

By learning about state-mandated retirement plans, you should now have the tools you need to avoid penalties, choose your own path, and increase the happiness of your employees. 

Whether your state has announced legislation yet or not, things are moving fast! If you’re a client headquartered in Minnesota or Maryland, you know that we’re keeping an eye out for you. If you’re located anywhere else, be sure to look for the newest updates, or even take the initiative to get started before your state jumps on the trend. 

Did you know that payroll services can be useful partners to work with your existing retirement plan, and some even offer retirement plans? CSI Accounting & Payroll offers retirement plan options through carefully chosen partners with systems that integrate with ours. These plans scale with small businesses, and we can even assist in obtaining credits to help offset the cost.

To see if we can be a good fit for your business, click the button below to schedule a free consultation:

Not ready to talk? That’s okay! First, learn more about the cost of a payroll service:How much does a payroll service cost? Click here to learn more about the common and miscellaneous factors that make up a payroll fee.

Bret Asmussen

Bret began working at CSI in 2007. Over the years, he worked his way up from an entry-level marketing position to his current role of manager of our payroll service. Bret is largely responsible for the growth of our payroll division over the last several years. His previous experience and knowledge in sales and management are exemplified in his success here. Bret has a college degree in Computer Networking, a skill that certainly comes in handy in an office environment. Bret is also a Certified Payroll Professional (CPP). Fun Fact: As an active duty member of the United States Marine Corps, he served in Operation Desert Shield and Desert Storm.