As we enter the last few weeks of 2025 and prepare for 2026, one of the many challenges that business owners look to navigate is creating a retirement savings strategy that meets their objectives, as well as the needs of their employees. This can be a difficult proposition for many business owners, particularly small business owners, as most tend to be far more focused on the continued survival of their business over retirement planning strategies.
Additionally, the perceived cost and complexity of establishing a formal retirement plan have traditionally been key factors preventing small businesses from creating a retirement plan. In fact, less than half of small business owners have a retirement plan and only two-thirds regularly work with a financial advisor.* All of this has helped lead to a retirement savings crisis in America. To help address it, a growing number of individual states are attempting to fill the void by introducing a new solution: state-mandated retirement plans.
State-Mandated Retirement Plans
A state-mandated retirement plan is a retirement savings program that targets businesses in a specific state that don’t currently sponsor a retirement plan covering their employees. Depending on individual state guidelines, select business owners may be exempt from coverage in a state-mandated retirement plan based on the size of the business (e.g., less than five employees) or how long the business has been in place (e.g., less than two years). While each state-mandated program can vary somewhat in design, these plans are intended to be simplistic with most structured as a payroll-deduction Roth IRA-based program with automatic enrollment for employees and no required employer contribution.
Despite the relative simplicity of these programs, there are some key challenges that have been cited by business owners considering a state-mandated plan, including:
Limited investment alternatives (the state selects money manager and investment options for the program)
- No ability for a business owner to customize plan features for their unique needs
- Excess contribution concerns with Roth IRAs (if employee does not meet the eligibility requirements for a Roth IRA or has already made individual or Roth contributions elsewhere)
- The general discomfort some business owners have with participation in a state-mandated and state-administered program
Considerations for Business Owners
For business owners operating in a state with an active or upcoming state-mandated retirement plan, the question of how to address retirement savings for themselves and their employees has now become a little more complicated. There are generally two options to consider:
- Business owners can enroll and participate in the state-mandated Roth IRA-based plan, or
- Business owners can opt out of the state-mandated retirement plan and establish a private retirement plan (i.e. SEP, SIMPLE, 401(k), etc.) tailored to the unique needs of the business owner and employees
Ultimately, a state-sponsored retirement plan may be a good fit for some business owners, but it’s also important for business owners to remember that they have other options, and that a one-size-fits-all solution may not be the best choice.
The primary goal with state-mandated retirement programs is to make saving for retirement more accessible to employees, particularly with small business owners. Over a dozen states now have active mandated retirement programs or have them in development, with additional states in various stages of discussion to create this type of program. To confirm if your state has an active state-mandated plan or is considering one, you can reach out to your Secretary of State office, or you can review the Georgetown University Center for Retirement Initiatives website. Georgetown University has done some extensive research and analysis of state-mandated retirement plans around the country and is a great resource.
If you would like to explore private retirement plan options for your business, consider speaking to your financial advisor for an overview of your retirement plan alternatives.
*Investopedia Article “Do Small Business Owners Need Financial Advisors?”
IMPORTANT DISCLOSURES: The information provided is based on internal and external sources that are considered reliable; however, the accuracy of this information is not guaranteed. This piece is intended to provide accurate information regarding the subject matter discussed. It is made available with the understanding that Benjamin F. Edwards is not engaged in rendering legal, accounting or tax preparation services. Specific questions on taxes or legal matters as they relate to your individual situation should be directed to your tax or legal professional.