Industry News
The Retirement Crisis and State Mandated Retirement Plans
As millions of Americans approach retirement age, many have growing concerns about their financial security and being able to retire comfortably. One major cause of this is a lack of retirement savings among working Americans. A study done by the National Institute on Retirement Security found that “the median retirement account balance is $3,000 for all working-age households and $12,000 for near-retirement households.”1 These numbers show a clear issue, but what is being done to combat this? The federal government has taken steps to try and increase employee access to retirement savings vehicles, making it easier for workers to save.
One major way that workers save money for retirement is through a company-sponsored plan offered by their employer. In an effort to try and encourage more employers to offer plans, a variety of tax credits have been introduced for both the employer and employee. For some employees, they are able to receive a tax credit of a percentage of their retirement plan deferrals based on their adjusted gross income for the year. For employers who do not have a plan in place, tax credits for starting a plan and offering certain features, like a company match or automatic enrollment, are available. These tax credits make it more feasible for many employers to offer a plan, giving their employees access to a retirement savings vehicle that they would not have otherwise.
For those who are not prompted by the available tax credits to put a plan in place, some states are implementing mandatory retirement plans for any business in the state. For businesses in these states without a plan in place, there are two choices: join the state’s program or start your own plan. Each state’s program is slightly different, but many are Roth IRAs that feature automatic enrollment and automatic escalation of employee deferrals. These state plans do not allow you to have a company match, and for some business owners, you may not be eligible to participate in a Roth IRA based on your income. States are making these plans mandatory for employers of a certain size and penalizing those who do not comply by state specific deadlines.
Since this varies state by state, it is important to keep up to date with your specific state’s rules and regulations. If you would like to see where your state stands on implementing a mandatory plan or would like to talk more about implementing your own plan, please visit PIA's 401K program.
One major way that workers save money for retirement is through a company-sponsored plan offered by their employer. In an effort to try and encourage more employers to offer plans, a variety of tax credits have been introduced for both the employer and employee. For some employees, they are able to receive a tax credit of a percentage of their retirement plan deferrals based on their adjusted gross income for the year. For employers who do not have a plan in place, tax credits for starting a plan and offering certain features, like a company match or automatic enrollment, are available. These tax credits make it more feasible for many employers to offer a plan, giving their employees access to a retirement savings vehicle that they would not have otherwise.
For those who are not prompted by the available tax credits to put a plan in place, some states are implementing mandatory retirement plans for any business in the state. For businesses in these states without a plan in place, there are two choices: join the state’s program or start your own plan. Each state’s program is slightly different, but many are Roth IRAs that feature automatic enrollment and automatic escalation of employee deferrals. These state plans do not allow you to have a company match, and for some business owners, you may not be eligible to participate in a Roth IRA based on your income. States are making these plans mandatory for employers of a certain size and penalizing those who do not comply by state specific deadlines.
Since this varies state by state, it is important to keep up to date with your specific state’s rules and regulations. If you would like to see where your state stands on implementing a mandatory plan or would like to talk more about implementing your own plan, please visit PIA's 401K program.
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