Several states across the U.S. have implemented mandated retirement savings programs that provide a standardized solution for businesses required to offer a plan but not sponsoring one themselves. These state programs generally require employers with a certain number of employees (commonly 5 to 25 or more) and at least two years in operation to either enroll in the state program or sponsor a private plan. Businesses that fail to comply may face escalating penalties.
In most cases, the state-facilitated programs enroll employees automatically at a 3% contribution rate, with an annual contribution cap of $7,000. Employers are generally not permitted to make matching contributions under this program. Their responsibilities are limited to facilitating payroll deductions and ensuring timely deposits into the state-managed accounts. Employers do not bear fiduciary responsibilities regarding investment decisions or outcomes. These plans are intentionally basic and limited in scope.
Customized Retirement Plan
A private, customized 401(k) plan offers greater flexibility and several advantages over a state-sponsored program, especially for businesses looking to align retirement benefits with their strategic goals. Key advantages and benefits of a custom private 401(k) plan include:
- Significantly higher contribution limits for employees
- The option to make tax deferred as well as Roth contributions
- Employer matching contributions, helping attract and retain top talent
- A broader range of investment options
- Plan design flexibility, allowing for tailored eligibility, vesting schedules, and profit sharing
- Tax advantages for both the business and its employees
- Government tax credits
- Dedicated support and service, including ongoing plan management and compliance assistance
- Control over plan fees and investment strategies
Tax Credits, Advantages, and Personalized Service Experience with Customized Plans
Companies offering a 401(k) plan may qualify for tax credits that offset the costs of starting and maintaining the plan, including up to $5,000 annually for the first three years under the SECURE Act. Additionally, employers can receive a $500 annual tax credit for three years for adding automatic enrollment features to their plan, further reducing administrative expenses. Employees can voluntarily enroll, benefit from higher annual deferral limits, and access personalized guidance. For employers, offering a well-designed 401(k) plan signals a commitment to their workforce’s long-term financial wellness, enhancing the company’s reputation and improving competitiveness in the job market. Additionally, custom plans can be adapted as the business evolves and grows. With RPG Consultants, employers can expect to receive a high level of personalized service and tailored guidance that will align with their company’s culture and needs. We focus on building long-term relationships and providing consistent and accessible support that goes far beyond implementing a new plan.
Employees can voluntarily enroll, benefit from higher annual deferral limits, and access personalized guidance. For employers, offering a well-designed 401(k) plan signals a commitment to their workforce’s long-term financial wellness, enhancing the company reputation and improving competitiveness in the job market. Additionally, custom plans can be adapted as the business evolves and grows.
Planning for Long-term Growth and Success
Employers might view state-sponsored plans as a simple and automatic way to meet requirements. However, as you evaluate your options, keep in mind that while the state-sponsored plan may appear more affordable and low-effort initially, it lacks many of the advantages that a custom 401(k) can offer.
At RPG Consultants, we specialize in personalized retirement plan design and administration, offering hands-on support, flexibility, and strategic guidance businesses need to build stronger retirement outcomes. Over time, the customization, tax benefits, and higher contribution opportunities available in a 401(k) plan often outweigh the short-term simplicity of a state-mandated option.
State-mandated retirement programs vary across the country; the chart above highlights the specifics of New Jersey’s RetireReady program as an example.