State-mandated retirement programs are becoming more prevalent across the country. With registration deadlines approaching, small businesses must understand these requirements.

These programs typically include a Roth individual retirement account (IRA) and a marketplace where employees can shop for private qualifying retirement plans. 

Tax-Deferred Savings

In addition to federal Social Security, employees can use a state retirement plan to add additional savings to their paychecks. The IRS qualifies these plans to allow employees to invest a portion of their pre-tax earnings into investment accounts. The investment returns are taxed only when the money is withdrawn, typically at retirement.

In recent years, state-sponsored plans have risen in popularity to help employees save for retirement. Many states have already enacted laws to introduce these programs, and more are in the process of implementing them. California’s program, CalSavings, was launched in 2016, and by 2022, employers with five or more eligible employees will be required to institute a plan or provide a qualifying alternative.

New Mexico’s upcoming program, Work & Save, is another example. In this case, the plan is mandatory for employers of a certain size and works with companies’ existing payroll providers.


In a time when pensions have disappeared from many private-sector jobs and Social Security appears vulnerable, states are responding by enacting new retirement savings plans that automatically enroll employees unless they opt-out. These plans are called state-mandated retirement plans, and they are rapidly gaining in popularity across the U.S. Small businesses in states with mandated retirement plan laws need to understand these new requirements and how they may impact their business moving forward.

Your contributions to your annuity saving account are tax-deductible, and the interest earned on those deductions is also tax-deductible. You can choose to receive a refund of your contribution account balance upon separation from state service, but be aware that 20% federal mandatory withholding and a possible 10% excise tax will be applied to the taxable portion of any such withdrawal.

Participation in the Public Employees’ Retirement System is mandatory for most state agency employees who are regularly employed on a half-time or full-time permanent basis. Faculty and staff may be eligible for a different, lower-cost individual investment plan through ERS called Texa$aver(sm), available at some higher education institutions.

Investment Opportunities

As a small business owner, consider providing retirement plan options for your employees. With pensions fading and Social Security looking fragile, many workers are turning to 401(k) plans and other employer-sponsored retirement savings plans.

These plans allow you to invest your employer match and employee contributions in various investments, including stocks, bonds, mutual funds, ETFs, and real estate trusts. They also often have lower fees and costs than a traditional company-administered retirement plan.

These retirement investment vehicles can be an excellent way to save for your future, especially if you are close to retirement age. The key is to avoid getting too aggressive with your investment portfolio, as large market downturns can hurt your wealth. In particular, being overly invested in stocks can be dangerous if you are close to retirement, as you’ll have to take distributions during a downturn, which can hurt your long-term wealth. Investing in a mix of assets is the best way to mitigate risk. A balanced portfolio of 60% stocks and 40% bonds is generally a good bet, but you can find many other investing strategies to help protect your investments.


As the contributions to state retirement plan continue to roll out nationwide, small business owners must understand how they work and what they mean moving forward. The mandates require employers of a certain size to automatically enroll employees in the state plan or offer the plan and allow employees to opt out.

Your membership in the system comprises two parts – an annuity savings account and a pension. The annuity account consists of contributions deducted from your paycheck, and the interest earned on those contributions is credited to your individual savings account. The Public Employees Retirement Administration Commission (PERAC) determines the interest rate.

The pension portion is a benefit payable to you at retirement. The pension is based on your total service earnings in the system plus the average annual investment return credited to your account during your creditable service. The investment returns are pooled with those of other members and managed by the Pension Reserves Investment Trust (PRIT). In addition, you may contribute to a Simplified Employee Pension Plan (SEP) or set up a Salary Reduction IRA at any time.


As the state-mandated retirement programs continue to roll out over the next 1 to 2 years, small businesses need to understand how they work and what benefits employees can get from participating. While it’s tempting to opt out of these programs and offer your own private qualifying retirement plan, the reality is that many states will penalize you for not offering an alternative.

MSERS members’ contributions are deducted from their paychecks and deposited into an annuity savings account, where they earn interest regularly. This interest is credited to your account and is used to calculate your pension allowance at retirement.

ORBIT allows employees to make various changes to their accounts online, including updating beneficiaries, contact information and more. This makes it easy for members to manage their accounts anytime – even after leaving public service. It’s also portable to other employer-sponsored retirement plans in Maryland. However, ORP accounts do not receive an automatic cost-of-living adjustment if they move between governmental programs.