Introduction

Retirement benefits were once thought of as optional for most small businesses, but that is rapidly changing. A growing number of states now require certain employers to either offer a qualifying workplace retirement plan or enroll in a state-facilitated retirement savings program.

These requirements are often called “mandatory retirement accounts” or “state-mandated retirement plans.” The name can be confusing because employees are generally not forced to contribute. Instead, the requirement usually applies to the employer. A covered business must act by offering its own qualified plan, registering for the state program, or certifying that it is exempt.

For business owners, this is more than an employee-benefits issue. It can affect payroll, compliance, hiring, budgeting, and tax planning.

What Is a Mandatory Retirement Account?

There is currently no general federal law requiring every private employer to offer a retirement plan. The Employee Retirement Income Security Act, commonly known as ERISA, establishes standards for many employer-sponsored plans, but it does not require every business to create one.

State laws are filling part of that gap. Depending on the state, an employer that does not already sponsor a qualifying retirement plan may be required to participate in a state program. These programs are intended to give more workers a simple way to save for retirement through payroll deductions.

As of June 1, 2026, Georgetown University’s Center for Retirement Initiatives reported that 22 states had established state-facilitated retirement savings programs, with 17 programs fully open to eligible employers and workers. Not every program is mandatory, and the rules vary significantly in every state.

How Do State-Mandated Programs Work?

Most mandatory state programs use an automatic individual retirement account, often called an auto-IRA. After the employer registers and submits employee information, eligible workers are automatically enrolled at a default contribution rate unless they choose another rate or opt out.

Contributions are withheld from the employee’s paycheck and sent to the program administrator. The account belongs to the employee, not the employer, and can generally remain with the employee after a job change.

Many programs use Roth IRAs as the default account. Roth IRA contributions are made with after-tax dollars, so employees do not receive an immediate income-tax deduction. Qualified withdrawals in retirement are generally tax-free. Some programs may also offer a traditional IRA option.

The employee controls whether to participate. Although enrollment may happen automatically, employees can generally opt out, change their contribution percentage, or select from the program’s available investment choices.

What Is the Employer Responsible For?

The employer’s role is usually administrative. Depending on the state, responsibilities may include:

In most auto-IRA programs, the employer does not select investments, manage employee accounts, or provide investment advice. Employer contributions are also generally not required and may not be permitted within the state auto-IRA.

Even when the direct financial cost is limited, employers should not assume the process will take care of itself. Payroll settings, employee eligibility, contribution changes, and submission deadlines must be handled correctly. Missed registrations or repeated payroll errors may result in notices, penalties, or added administrative work.

Which Employers Are Covered?

Coverage rules differ by state. A state may base its requirement on the number of employees, how long the business has operated, whether employees earn wages in that state, or whether the employer already offers a retirement plan.

Some programs apply to businesses with only one employee. Others begin at five, ten, fifteen, or more employees. Deadlines may also be phased in, with larger employers required to comply before smaller businesses.

A business may be exempt if it offers a qualified plan such as a 401(k), 403(b), SEP IRA, SIMPLE IRA, or certain pension plans. However, an employer should confirm that its plan satisfies the specific state’s exemption rules. Having owners contribute to personal IRAs generally does not mean the business sponsors a workplace retirement plan.

Businesses with employees in multiple states need to be especially careful. An employer located in one state may still have obligations in another state if employees work there.

State Auto-IRA Versus a Private Retirement Plan

A state-facilitated program can be a practical solution for a small business seeking a low-cost way to satisfy its legal obligation. The employer generally has limited administrative responsibility and typically does not have to contribute.

However, a state program may not be the best long-term choice for every business.

A private plan, such as a 401(k) or SIMPLE IRA, may provide higher contribution limits, employer matching options, broader investment choices, and more control over eligibility and plan design. It may also be a stronger recruiting and retention benefit.

For 2026, the combined annual contribution limit for an individual’s traditional and Roth IRAs is $7,500, or $8,600 for someone age 50 or older. By comparison, the basic employee deferral limit for many 401(k) plans is $24,500 in 2026, before applicable catch-up contributions. These differences can matter to owners and employees who want to save more aggressively.

The best option depends on the company’s cash flow, workforce, growth plans, payroll system, and goals for employee benefits.

Tax Credits May Reduce the Cost of Starting a Plan

Employers should consider available federal tax incentives before automatically choosing the state program.

Eligible small employers may qualify for a federal tax credit for the ordinary and necessary costs of starting a SEP IRA, SIMPLE IRA, or qualified retirement plan such as a 401(k). The credit can be as much as $5,000 per year for three years, depending on the employer’s size, eligible employees, and startup costs.

Additional credits may be available for qualifying employer contributions and for adding an eligible automatic enrollment feature. These incentives can make a private retirement plan more affordable than a business owner initially expects.

Because eligibility and calculations can be complex, tax credits should be reviewed before a new plan is established.

A Note for Missouri Employers

Missouri’s Show-Me MyRetirement Savings Plan is different from the mandatory auto-IRA programs used by many other states. Missouri’s program is voluntary and is structured as a multiple-employer retirement plan for eligible small businesses. Missouri employers should not assume that the words “state program” automatically mean participation is required.

However, businesses with employees working in other states may still be subject to those states’ mandates. A Missouri-based company with remote workers, branch locations, or employees crossing state lines should review each applicable state separately.

Common Mistakes Employers Should Avoid

One common mistake is ignoring a state notice because the business assumes it is too small to be covered. Another is believing employees can simply open personal IRAs instead of the employer registering for the state program. Employers may also miss deadlines because they think their payroll company automatically handles registration.

Other problems occur when businesses incorrectly claim an exemption, fail to add new employees, withhold the wrong percentage, or do not transmit contributions promptly.

The safest approach is to assign responsibility for the program, confirm what the payroll provider will and will not do, and keep documentation showing registration, exemptions, employee elections, and contribution submissions.

What Should Business Owners Do Now?

Start by determining whether your state has an active or upcoming retirement mandate. Then review the employer-size threshold, eligibility rules, deadlines, and exemptions.

Next, confirm whether your business already offers a plan that qualifies for an exemption and if it does not, compare the state program with private options rather than assuming one choice is automatically better.

Business owners should also review payroll compatibility, administrative costs, potential employer contributions, employee needs, and available tax credits. The decision should support both compliance and the company’s broader financial goals.

How an Accounting and Consulting Firm Can Help

Mandatory retirement programs involve more than completing a registration form. They can affect payroll procedures, tax credits, cash-flow planning, employee communications, and long-term benefit strategy.

At Volpe Consulting & Accounting, we help business owners understand how changing requirements may affect their operations. We can assist with reviewing financial considerations, evaluating potential tax credits, coordinating payroll processes, and working with retirement-plan professionals when a private plan is being considered.

The most important step is not waiting until a deadline or penalty notice arrives. By reviewing your obligations early, your business can choose a retirement solution that meets state requirements while supporting employees and the future of the company.

Retirement program rules are state-specific and can change. This article is for general informational purposes and is not legal, investment, or individualized tax advice. If you need specialized assistance regarding your business’ retirement accounts, reach out to Volpe Consulting!