By Amber Harms
Over 55 million U.S. workers currently don’t have access to a retirement plan sponsored by their employer. To bridge this gap, a majority of states have contemplated state-mandated retirement savings plan legislation, and 13 have already signed such programs into law.
If your company doesn’t currently offer a retirement savings plan, it’s only a matter of time before you’ll have to. Take a closer look at employer-sponsored and state-sponsored retirement plans to determine what best meets your company’s goals.
Key retirement plan differentiators at a glance
1. Investment options
State-sponsored: You generally don’t have the ability to customize investment choices based on your employees’ unique needs. Instead, a state-selected board chooses a firm to make investment decisions
Company-sponsored: Choose from a range of investment options at various levels of risk and savings potential. Employees have more control over their investment decisions depending on factors like their age, savings goals and risk tolerance.
2. Plan types
State-sponsored: State plans are commonly Roth individual retirement accounts (IRAs), which allow participants to set aside after-tax income up to a specified amount each year. Employee contributions are deducted from post-tax income, so their money is generally tax-free at the time of withdrawal after age 59½.
Company-sponsored:
Sponsoring your own plan gives employers and plan participants broader options beyond a Roth IRA. For example, a 401(k) allows for pre-tax deductions, saving you and your employees money by reducing your payroll taxes and their taxable income. Not ready for a 401(k)?
Working with a company like ADP® gives you access to SIMPLE and SEP IRAs, allowing you to choose a plan with the benefits and administrative responsibilities that best fit your needs.
State-sponsored: With a Roth IRA, employees have a deferral limit of up to $6,000 from their annual salary. Participants age 50+ are also entitled to catch-up contributions of $1,000 per year. Employers are not permitted to make contributions.
Company-sponsored: If you choose to offer a 401(k), employees can contribute up to $20,500 for 2022. Anyone age 50+ is also eligible for an additional catch-up contribution of $6,500 per year. Employers may contribute at their discretion. The annual limit on total employee/employer contributions for 2022 is $61,000 (or $67,500 with the catch-up contribution).
3. Plan maintenance
State-sponsored: For employees, state-sponsored IRAs automatically enroll workers as they become eligible. For employers, they’re a low-cost solution with fewer fiduciary responsibilities.
Company-sponsored: In addition to auto enrollment, a private plan can provide more options to increase participation and savings rates such as auto-escalation, financial wellness tools and personalized participant communications. Sponsoring a plan such as SIMPLE IRA or SEP IRA also eliminates the additional fiduciary responsibilities of a 401(k).
Adding a retirement plan to your employee benefits arsenal comes with strategic advantages — from a competitive edge in the talent search to increased employee engagement. But choosing the right plan is up to you.