Offering Retirement Plans May Soon Become Mandatory For Employers

If you don’t currently offer your employees a retirement plan, you may want to pay attention. At both the state and federal level, the government is continuing to push legislation to make mandatory retirement plans a reality. More than 25 states have proposed legislation to create a mandatory retirement plan for private-sector companies that don’t currently offer their employees a plan. California, Illinois and Connecticut are furthest along with these initiatives.

The retirement crisis
More than 50 percent of American workers do not have access to a retirement plan at work. The percentage is significantly higher for smaller employers. Yet, less than 5 percent of these workers without a plan contribute to an IRA. Many are calling this a retirement crisis.

What to expect from mandatory retirement legislation
There are two basic retirement plans being proposed:

• The first is an IRA with automatic enrollment. This is what is being implemented in California through California Secure Choice, the state’s proposed retirement benefits plan. Private-sector employers with five or more employees, who currently do not sponsor a retirement plan for their employees, would be required to set-up 3 percent automatic IRA deductions for all of their employees. Of course, there will be penalties for non-compliance. 

• The other type of plan is a Multiple Employer Plan (MEP). These plans allow for two or more unrelated employers to form a pooled 401(k) plan. MEPs generally offer lower plan costs and less of an administrative burden.

Much of the momentum surrounding the push to create these government-run retirement plans stems from President Obama’s directive during a July 2015 speech at the White House Conference on Aging. The Department of Labor followed up in November 2015 with proposed regulations offering a safe harbor for these plans; stating they would not be subject to the Employee Retirement Income Security Act that governs all 401(k) plans.

While there are still some regulatory hurdles for these government-run retirement plans, some states are moving forward with planning and implementation. It appears very likely some of these state-sponsored plans will be up and running as early as 2017. Contact TriNet for information on your retirement plan options and updates on what changes might be coming to your state.

This communication is for informational purposes only; it is not legal, tax or accounting advice; and is not an offer to sell, buy or procure insurance.

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